The material in this text is covered under six major headings. The student progresses from the development of basic analytical skills in accounting and finance to the utilization of decision-making techniques in working capital management, capital budgeting, long-term financing, and other related areas. A total length of 21 chapters should make the text appropriate for one-semester coverage.

The student is given a thorough grounding in financial theory in a highly palatable and comprehensive fashion—with careful attention to definitions, symbols, and formulas. The intent is that the student will develop a thorough understanding of the basic concepts in finance.

Parts

1. Introduction   This section examines the goals and objectives of financial management. The emphasis on decision making and risk management is stressed, with an update of significant events influencing the study of finance.

2. Financial Analysis and Planning   The student first has the opportunity to review the basic principles of accounting as they relate to finance (financial statements and funds flow are emphasized). This review material in Chapter 2 is optional—and the student may judge whether he or she needs this review before progressing through the section.

Additional material in this part includes a thorough study of ratio analysis, budget construction techniques, and development of comprehensive pro forma statements. The effect of heavy fixed commitments, in the form of either debt or plant and equipment, is examined in a discussion of leverage.

3. Working Capital Management   The techniques for managing the short-term assets of the firm and the associated liabilities are examined. The material is introduced in the context of risk-return analysis. The financial manager must constantly choose between liquid, low-return assets (perhaps marketable securities) and more profitable, less liquid assets (such as inventory). Sources of short-term financing are also considered.

4. The Capital Budgeting Process   The decision on capital outlays is among the most significant a firm will have to make. In terms of study procedure, we attempt to carefully lock down “time value of money” calculations, then proceed to the valuation of bonds and stocks, emphasizing present value techniques. The valuation chapter develops the traditional dividend valuation model and examines bond price sensitivity in response to discount rates and inflation. An appendix presents the supernormal dividend growth model, or what is sometimes called the “two-stage” dividend model. After careful grounding in valuation practice and theory, we examine the cost of capital and capital structure. The text then moves to the actual capital budgeting decision, making generous use of previously learned material and employing the concept of marginal analysis. The concluding chapter in this part covers risk-return analysis in capital budgeting, with a brief exposure to portfolio theory and a consideration of market value maximization.

5. Long-Term Financing   The student is introduced to U.S. financial markets as they relate to corporate financial management. The student considers the sources and uses of funds in the capital markets—with warrants and convertibles covered, as well as the more conventional methods of financing. The guiding role of the investment banker in the distribution of securities is also analyzed. Furthermore, the student is encouraged to think of leasing as a form of debt.

6. Expanding the Perspective of Corporate Finance   A chapter on corporate mergers considers external growth strategy and serves as an integrative tool to bring together such topics as profit management, capital budgeting, portfolio considerations, and valuation concepts. A second chapter on international financial management describes the growth of the international financial markets, the rise of multinational business, and the related effects on corporate financial management. The issues discussed in these two chapters highlight corporate diversification and risk-reduction attempts prevalent in the new century.