Understanding Financial Management

H. Kent Baker, University Professor of Finance, is the author of more than 150 articles for academic and professional journals including the Journal of Finance, Financial Management, The Financial Review, Journal of Financial Research, the Journal of Economics and Business, Harvard Business Review and many others. Gary E. Powell is an Associate Professor of Finance at Towson University.

• List of Figures ixList of Tables xiAbout the Authors xivPreface xviAcknowledgments xxPart I The Foundation 1Chapter 1 Introduction to Financial Management 31.1 Financial Management and the Financial Manager 41.2 Corporate Form of Business Organization 81.3 The Goal of Financial Management 101.4 Accounting Profit versus Economic Profit 121.5 The Agency Relationship 141.6 Organization of the Book 15Chapter 2 Interpreting Financial Statements 182.1 Basics of Annual Reports and Financial Statements 182.2 Balance Sheet 202.3 Income Statement 252.4 Statement of Cash Flows 312.5 Statement of Retained Earnings 352.6 Common-size Statements 352.7 Notes to Financial Statements 392.8 Quality of Earnings 402.9 Other Issues 41Chapter 3 Interpreting Financial Ratios 453.1 Financial Ratio Analysis 463.2 Liquidity Ratios 473.3 Debt Management Ratios 523.4 Asset Management Ratios 563.5 Profitability Ratios 613.6 Market Value Ratios 663.7 Uses of Financial Ratios 693.8 Limitations of Financial Ratio Analysis 70Chapter 4 The Time Value of Money 734.1 Central Concepts in Finance 744.2 Future Value of a Present Amount 754.3 Present Value of a Future Amount 804.4 Future Value of an Annuity 834.5 Present Value of an Annuity 864.6 Present Value of a Perpetuity 914.7 Compounding Frequencies 914.8 Nominal and Effective Interest Rates 944.9 Solving for an Unknown Interest Rate 954.10 Other Time Value Applications 98Chapter 5 Valuation 1035.1 Valuation Fundamentals 1045.2 Bond Characteristics and Features 1105.3 Bond Valuation 1155.4 Bond Pricing Relationships 1215.5 Interest Rate Risk 1265.6 Bond Yields 1295.7 Bond Trading and Price Reporting 1345.8 Preferred Stock Features and Valuation 1365.9 Common Stock Characteristics and Features 1405.10 Common Stock Valuation 142Part II Working Capital Management Decisions 155Chapter 6 Working Capital Management 1576.1 Introduction to Working Capital Management 1586.2 Approaches to Working Capital Management 1596.3 Operating and Cash Conversion Cycles 1636.4 Cash Management 1656.5 Accounts Receivable Management 1776.6 Inventory Management 181Part III Long-term Investment Decisions 189Chapter 7 Capital Investments and Cash Flow Analysis 1917.1 Capital Investment Decisions 1927.2 Project Classifications 1947.3 Capital Budgeting Process 1957.4 Guidelines for Estimating Project Cash Flows 1997.5 Cash Flow Components 2057.6 Tax Effects of Selling Depreciable Assets 2147.7 Applying Cash Flow Analysis 2177.8 Capital Budgeting for the Multinational Corporation 221Chapter 8 Capital Budgeting 2278.1 Project Classifications and Analysis 2288.2 Net Present Value 2308.3 Profitability Index 2358.4 Internal Rate of Return 2388.5 Modified Internal Rate of Return 2428.6 Payback Period 2468.7 Discounted Payback Period 2508.8 Summary of Capital Budgeting Techniques 2528.9 Mutually Exclusive Project Decisions 2548.10 Capital Rationing Decisions 2698.11 Capital Budgeting Techniques in Theory and Practice 272Chapter 9 Risk Analysis 2789.1 Types of Risk in Capital Budgeting 2799.2 Assessing Single-Project Risk 2859.3 Assessing Market Risk 2949.4 Adjusting for Risk 3029.5 Risk Analysis in Multinational Corporations 3139.6 Risk Analysis in Theory and Practice 315Part IV Long-term Financing Decisions 321Chapter 10 Raising Funds and Cost of Capital 32310.1 Financial Markets 32410.2 Investment Banks 32710.3 The Decision to Go Public 32810.4 Different Methods of Issuing New Securities 33110.5 Public Offer 33510.6 Private Placement 33910.7 Costs of Issuing New Securities 34110.8 Cost of Capital Concept 34210.9 Cost of Capital Components 34510.10 Weighted Average Cost of Capital 35810.11 Marginal Cost of Capital 361Chapter 11 Capital Structure 36911.1 The Financing Mix 37011.2 Understanding Financial Risk 37111.3 Capital Structure and the Value of the Firm 37511.4 Modigliani–Miller Theorem with Corporate Taxes 38111.5 The Costs of Financial Distress 38611.6 Tradeoff Theory of Optimal Capital Structure 38811.7 Pecking Order Theory of Capital Structure 39111.8 Stakeholder Theory of Capital Structure 39411.9 Capital Structure in Practice 39611.10 Bankruptcy 397Chapter 12 Dividend Policy 40112.1 Dividends and Dividend Policy 40212.2 The Dividend Puzzle 40712.3 Factors Influencing the Dividend Decision 41712.4 Dividend Policies 42312.5 Stock Repurchases 42912.6 Cash Dividends versus Stock Repurchases 43412.7 Dividend Reinvestment Plans 43612.8 Stock Dividends 44012.9 Stock Splits and Reverse Splits 446Glossary 453Index 469