Corporate Finance For Dummies - UK E-Book

Steven Collings

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 594

Veröffentlichungsjahr: 2013

Beschreibung

The maths, the formulas, and the problems associated with corporate finance can be daunting to the uninitiated, but help is at hand.

Corporate Finance For Dummies, UK Edition covers all the basics of corporate finance, including: accounting statements; cash flow; raising and managing capital; choosing investments; managing risk; determining dividends; mergers and acquisitions; and valuation. It also serves as an excellent resource to supplement corporate finance coursework and as a primer for exams.  

Inside you’ll discover:

• The tools and expert advice you need to understand corporate finance principles and strategies
• Introductions to the practices of determining an operating budget, calculating future cash flow, and scenario analysis - in plain English
• Information on the risks and rewards associated with corporate finance and lending
• Easy–to–understand explanations and examples
• Help to pass your corporate finance exam!

Leseprobe

Corporate Finance For Dummies®

Published by: John Wiley & Sons, Ltd., The Atrium, Southern Gate, Chichester, www.wiley.com

This edition first published 2013

© 2013 John Wiley & Sons, Ltd, Chichester, West Sussex.

Registered office

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A catalogue record for this book is available from the British Library.

ISBN 978-1-118-74350-8 (paperback); ISBN 978-1-118-74348-5 (ebk); ISBN 978-1-118-74347-8 (ebk)

Printed in Great Britain by TJ International, Padstow, Cornwall

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Corporate Finance For Dummies®

Visit www.dummies.com/cheatsheet/corporatefinanceuk to view this book's cheat sheet.

Table of Contents

Introduction

About This Book

Foolish Assumptions

Icons Used in This Book

Beyond the Book

Where to Go from Here

Part I: Getting Started with Corporate Finance

Chapter 1: Introducing Corporate Finance

Considering Corporate Finance and the Role of Money in the World

Identifying What Makes Corporate Finance Unique

Serving as an intermediary

Analysing interactions between people

Recognising How Corporate Finance Rules Your Life

Becoming Proactive about Corporate Finance

Chapter 2: Navigating the World of Corporate Finance

Visiting the Main Attractions in Finance Land

Investigating the incorporated entity

Discovering depository institutions

Covering yourself: Insurance companies

Spotting securities firms

Understanding underwriters

Finding out about funds

Obtaining other loans: Financing ­institutions

Buying and selling shares: Stock markets

Setting the rules: Regulatory bodies

Banking on the Bank of England

Governing policy: HM Treasury

Meeting the Inhabitants of Finance Land

Starting at entry-level positions

Researching the analysts

Checking the auditors

Assessing loss adjusters

Taking in the view from the top: Executives and managers

Making money: Traders

Taking financial responsibility: Treasury officers

Considering other finance positions

Visiting the Finance Land Information Resources

Using Internet resources

Reading print resources

Hunting out human resources

Chapter 3: Raising Money for Business Purposes

Raising Capital

Acquiring Debt to Raise Funds

Asking the right people for money

Making sure the loan pays off in the long run

Looking at loan terms

Selling Equity to Raise Cash

Selling shares to the public

Looking at the different types of shares

Part II: Reading Financial Statements as a Second Language

Chapter 4: Seeing What You’re Worth with the Balance Sheet

Introducing the Balance Sheet

Knowing the Weights on the Balance Scale

Assessing Your Assets

Considering current assets

Finding out about fixed assets

Investigating intangible assets

Gathering the rest: Other assets

Looking at Liabilities

Calculating current liabilities

Exploring long-term liabilities

Valuing the Company: Shareholders’ Funds

Ordinary shares

Treasury shares

Share premium

Profit and loss reserves

Revaluation reserve

Making Use of the Balance Sheet

Chapter 5: Getting Paid with the Profit and Loss Account

Adding Income and Subtracting Costs: What’s on the Profit and Loss Account

Calculating profitability: Gross profit

Finding the costs of doing business: Operating profit

Accounting for other costs and revenues: Earnings before interest and taxes

Considering tax and interest to arrive at net profit

Including earnings per share

Completing the picture: Supplemental notes

Putting the Profit and Loss Account to Good Use

Chapter 6: Easy Come, Easy Go: Understanding the Cash Flow Statement

Piecing Together a Puzzle of Cash Flows

Earning or spending cash: Operating ­activities cash flows

Buying and selling: Investing activities cash flows

Raising capital: Financing activities cash flows

Combining the three types of operations to find net change in cash

Using the Cash Flow Statement

Chapter 7: Making Financial Statements Useful with Ratio Analysis

Being Able to Pay the Bills: Liquidity Ratios

Current ratio

Acid test ratio

Analysing Efficiency with Activity Ratios

Trade debtors’ days

Days sales in trade debtors

Trade debtors turnover

Trade creditors ratio

Days sales in stock

Stock turnover

Stock turnover in days

Operating cycle

Working capital

Turnover (sales) to working capital

Fixed asset turnover

Measuring Profit Generation and Management with Profitability Ratios

Return on capital employed (ROCE)

Net profit margin

Net asset turnover

Gross profit margin

EBITDA/capital employed

Return on assets

Operating profit margin

Operating asset turnover

Return on operating assets

Return on total equity

Return on investment

Evaluating a Company’s Debt Management with Debt Ratios

Interest cover

Fixed charge coverage

Debt to equity ratio

Chapter 8: Measuring Financial Wellbeing with Special-Use Ratios

Focusing on Earnings and Dividends with Investor Ratios

Return on equity

Earnings per share

Dividend per share

Price to earnings ratio

Earnings yield

Dividend payout ratio

Dividend yield

Book value per share

Dividend cover

Generating Earnings from Interest: Ratios for Banks

Earning assets to total assets ratio

Net interest margin

Loan loss coverage ratio

Equity to total assets ratio

Deposits times capital

Loans to deposits ratio

Using Ratios to Measure Operating Asset Management

Operating ratio

Percentage earned on operating property

Operating revenue to operating property ratio

Long-term debt to operating property ratio

Part III: Placing Valuations on the Price Tags of Business

Chapter 9: Determining Present and Future Values: Time Is Money

Losing Value over Time

Increasing prices, decreasing value: Inflation

Maintaining your curiosity: Interest rates

Predicting Future Value

Making simple interest easy

Building an understanding of compound interest

Calculating the Present Value

Taking a closer look at earnings

Discussing discounted cash flows

Chapter 10: Looking to the Future with Capital Budgeting

Understanding Capital Budgeting

Rating Your Returns

Looking at costs

Reckoning your revenue

Calculating the accounting rate of return

Making the most of the internal rate of return through modification

Netting Present Values

Totting up NPV over time

Managing the project’s value

Determining the Payback Period

Managing Capital Allocations

Assessing the equivalent annual cost

Considering liquid assets

Looking at a Piece of Project Management

Doing the value schedule calculations

Carrying out the budget calculations

Chapter 11: Bringing on Your Best Bond Bets

Exploring the Different Types of Bonds

Considering corporate bonds

Gauging government gilts

Receiving periodic interest with coupon bonds

Forgoing periodic payments with zero-coupon bonds

Figuring out deep discounted bonds

Sizing up asset-backed securities

Having the best of two worlds with convertible bonds

Using callable bonds to capitalise on interest rates

Looking at the pros and cons of puttable bonds

Getting the gist of registered bonds

Counting on forgiveness with catastrophe bonds

Looking at Bond Rates

Reading Bond Information

Understanding Bond Valuation

Chapter 12: Being Savvy When Shopping for Shares

Exchanging Shares: Where to Buy and Sell

Looking at the Different Types of Orders

Making market orders

Controlling prices with stop and limit orders

Pondering pegged orders

Counting on time-contingent orders

Comparing Long and Short Stocks

Buying long

Using margin trading

Selling short

Classifying Shares: Chips, Caps and Sectors

Dipping into chips

Capitalising on market caps

Selecting by sectors

Knowing Where the Market Stands: Bulls versus Bears

Watching Stocks and Shares Indices

Calculating the Value of Stocks and Shares

Surveying equity valuation models

Checking out corporate analysis

Evaluating industry performance

Factoring in stock market fluctuations

Mulling over macroeconomics

Chapter 13: Measuring Valuations of the May-Be: Derivatives

Introducing the Derivatives Market

Buying or Selling – Then Again, Maybe Not: Options

Managing risk

Generating revenue

Valuing

Customising the Contract with Forwards

Managing risk

Generating revenue

Valuing

Adding Some Standardisation to the Contract with Futures

Managing risk

Generating revenue

Valuing

Exchanging This for That and Maybe This Again: Swaps

Managing risk

Generating revenue

Valuing

Part IV: Walking in a Risk Management Wonderland

Chapter 14: Managing the Risky Business of Corporate Finances

Understanding that Risk Is Unavoidable

Investigating Interest Rate Risk and Inflation Risk

Minimising Market Risk

Evaluating the Risk of Extending Credit

Understanding Off-Balance-Sheet Risk

Factoring in Foreign Exchange Risk

Describing transaction risk

Tackling translation risk

Considering other foreign exchange risks

Identifying Operating Risk

Looking at Liquidity Risk

Chapter 15: Through the Looking Glass of Modern Portfolio Theory

Delving into Portfolio Practicalities

Surveying portfolio management strategies

Looking at modern portfolio theory

Understanding passive versus active management

Hypothesising an Efficient Market

Risking Returns

Looking at the trade-off between risk and return

Diversifying to maximise returns and minimise risk

Considering risk aversion

Measuring risk

Optimising Portfolio Risk

Chapter 16: Entering the Science Lab: Financial Engineering

Creating New Tools through Financial Engineering

Making Securities from Just about Anything

Realising that you can securitise everything

Slicing securities into tranches

Looking at Hybrid Finances

Meeting the mixed-interest class of hybrids

Circling around single asset class hybrids

Becoming a financial Frankenstein: Index-backed CDs

Bundling Assets

Making a bundle with multi-asset bundles

Unbundling securities

Appealing to a Large Market with Exotic Finances

Owning options

Seeking out swaps contracts

Living with exotic loans

Engineering Your Portfolio to the Max

Examining the fundamentals of portfolio engineering

Finding out about flash crashes

Moving into Computational Finance

Changing the face of trading

Offering online banking

Looking at logic programming

Chapter 17: Assessing Capital Structure

Making More Money than You Borrow

Calculating the Cost of Capital

Measuring cost of capital the WACC way

Factoring in the cost of debt

Looking at the cost of equity

Discussing dividend policy

Choosing the Proper Capital Structure

Part V: Understanding Financial Management

Chapter 18: Assessing Financial Performance

Understanding the Importance of Analysing Financial Success

Using Common-Size Comparisons

Looking at vertical common-size comparisons

Handling horizontal common-size comparisons

Considering cross comparisons

Providing Context by Performing Comparatives

Contrasting over time

Comparing against industry competitors

Determining the Quality of Profits

Tackling accounting concerns

Thinking about sources of cash flows

Assessing Investment Performance

Employing conventional evaluations of success

Perusing portfolio manager evaluations

Chapter 19: Forecasting Finances Is Easier than Predicting the Weather

Seeing with Eyes Analytical

Collecting data

Finding an average

Measuring data distribution

Understanding probability

Viewing the Past as New

Finding trends and patterns

Looking at regression

Seeing the Future Unclouded: Forecasting

Using statistics and probability

Seeking a precedent: Reference class forecasting

Evaluating forecast performance

Chapter 20: Spelling out the ABC of M&A

Getting the Lowdown on M&A

Differentiating Between the M and the A

Joining together: Mergers

Purchasing a company: Acquisitions

Taking control: Buyouts

Considering other forms of integration

Clearing up the Mess: Divestitures

Identifying Motives for M&A

Discovering diversification

Expanding geographically

Benefiting from economies of scale

Enjoying economies of scope

Integrating up, down and all around

Eliminating competitors

Seeking manager compensation

Gaining synergies

Measuring What a Business Is Worth to You

Assessing a price

Choosing an evaluation method

Financing M&A

Part VI: The Part of Tens

Chapter 21: Ten Things You Need to Know about International Finance

Understanding that Trade Imbalances Don’t Exist

Revealing that Purchasing Power Is Different to Exchange Rate

Examining Eurobonds (which Aren’t Necessarily from Europe)

Sorting the Muddled Relationship of Interest and Exchange Rates

Spotting the Spot Rate and Other Currency Transactions

Diversifying Can’t Completely Eliminate Risk Exposure

Cross-Listing Allows Companies to Tap the World’s Resources

Outsourcing as a Taxing Issue

Complicating Your Life with Politics

Knowing Your Neighbours: Cultural Understanding Is Vital

Chapter 22: Ten Things You Need to Understand about Behavioural Finance

Making Financial Decisions Is Rarely Entirely Rational

Executing Sound Financial Decisions Involves Identifying Logical Fallacies

Getting Emotional about Financial Decisions Can Leave You Crying

Stampeding in Finance Can Get You Trampled

Letting Relationships Influence Finances Can Be Dangerous

Satisficing Can Optimise Your Time and Energy

Explaining Life in the Improbable: Prospect Theory

Accepting that People Are Subject to Behavioural Biases

Analysing and Presenting Information Is Fraught with Problems

Measuring Irrationality in Finance Is Rational Behavioural Finance

About the Authors

Cheat Sheet

Connect with Dummies

Part I

Getting Started with Corporate Finance

For Dummies can help you get started with lots of subjects. Visit www.dummies.com to learn more and do more with For Dummies.

In this part . . .

Bone up on the basics of corporate finance and become proactive with your corporate finance know-how.

Navigate your journey through the complex world of corporate finance, stopping off at the major organisations and visiting the major roles involved along the way.

Get to grips with how companies raise money by incurring debt and by selling equity.

Chapter 1

Introducing Corporate Finance

In This Chapter

Understanding the meaning of money

Looking at the study of corporate finance

Seeing the role corporate finance plays in your life

Making corporate finance work for you

Corporate finance is more than just a measure of money. In fact, as you discover in this chapter – where we talk about the nature of money, how it applies to corporate finance and how it connects to you and your life – money is somewhat incidental to finance. When you’re discussing corporate finance, you’re looking at the whole world in a brand new way that measures it and what it contains so as to make the information useful to people. You can calculate things in terms of corporate finance that you simply can’t measure accurately in any other way.

Part of the role of this chapter is also to introduce you to the book as a whole. Therefore, as part of helping you become proactive with your corporate finance know-how, we clue you into other chapters to allow you to follow your personal interests quickly and easily.

Considering Corporate Finance and the Role of Money in the World

Corporate finance is the study of relationships between groups of people that quantifies the otherwise immeasurable. (Corporate finance can also refer to a department, such as the corporate finance department in an investment bank that deals with advice given to companies about financial arrangements.) To understand how this rather wordy definition makes any sense at all, you have to take a quick look at the role of money in the world.