MICHAEL C. EHRHARDT (University of Tennessee) - EUGENE F. BRIGHAM (University of Florida)
FINANCIAL MANAGEMENT: THEORY AND PRACTICE
THIRTEENTH EDITION - Sách dành cho NCS Và học viên Cao học
When we wrote the first edition of Financial Management: Theory and Practice, we had four goals: (1) To create a text that would help students make better financial decisions; (2) To provide a book that could be used in the introductory MBA course, but one that was complete enough for use as a reference text in follow-on case courses and after graduation; (3) To motivate students by demonstrating that finance is both interesting and relevant; And (4) To make the book clear enough so that students could go through the material without wasting either their time or their professor’s time trying to figure out what we were saying.
The collapse of the sub-prime mortgage market, the financial crisis, and the global economic crisis make it more important than ever for students and managers to understand the role that finance plays in a global economy, in their own companies, and in their own lives. So in addition to the four goals listed above, this edition has a fifth goal, to prepare students for a changed world.
INTRINSIC VALUATION AS A UNIFYING THEME
Our emphasis throughout the book is on the actions that a manager can and should take to increase the intrinsic value of the firm. Structuring the book around intrinsic valuation enhances continuity and helps students see how various topics are related to one another.
As its title indicates, this book combines theory and practical applications. An understanding of finance theory is absolutely essential for anyone developing and/or implementing effective financial strategies. But theory alone isn’t sufficient, so we provide numerous examples in the book and the accompanying Excel spreadsheets to illustrate how theory is applied in practice. Indeed, we believe that the ability to analyze financial problems using Excel is absolutely essential for a student’s successful job search and subsequent career. Therefore, many exhibits in the book come directly from the accompanying Excel spreadsheets. Many of the spreadsheets also provide brief “tutorials” by way of detailed comments on Excel features that we have found to be especially useful, such as Goal Seek, Tables, and many financial functions.
The book begins with fundamental concepts, including background on the economic and financial environment, financial statements (with an emphasis on cash flows), the time value of money, bond valuation, risk analysis, and stock valuation.
With this background, we go on to discuss how specific techniques and decision rules can be used to help maximize the value of the firm. This organization provides four important advantages:
1. Managers should try to maximize the intrinsic value of a firm, which is determined by cash flows as revealed in financial statements. Our early coverage of financial statements thus helps students see how particular financial decisions affect the various parts of the firm and the resulting cash flow. Also, financial statement analysis provides an excellent vehicle for illustrating the usefulness of spreadsheets.
2. Covering time value of money early helps students see how and why expected future cash flows determine the value of the firm. Also, it takes time for students to digest TVM concepts and to learn how to do the required calculations, so it is good to cover TVM concepts early and often.
3. Most students—even those who do not plan to major in finance—are interested in investments. The ability to learn is a function of individual interest and motivation, so Financial Management’s early coverage of securities and security markets is pedagogically sound.
4. Once basic concepts have been established, it is easier for students to understand both how and why corporations make specific decisions in the areas of capital budgeting, raising capital, working capital management, mergers, and the like.
INTENDED MARKET AND USE
Financial Management is designed primarily for use in the introductory MBA finance course and as a reference text in follow-on case courses and after graduation. There is enough material for two terms, especially if the book is supplemented with cases and/or selected readings. The book can also be used as an undergraduate introductory text with exceptionally good students, or where the introductory course is taught over two terms.
IMPROVEMENTS IN THE 13TH EDITION
As in every revision, we updated and clarified materials throughout the text, reviewing the entire book for completeness, ease of exposition, and currency. We made hundreds of small changes to keep the text up-to-date, with particular emphasis on updating the real world examples and including the latest changes in the financial environment and financial theory. In addition, we made a number of larger changes. Some affect all chapters, some involve reorganizing sections among chapters, and some modify material covered within specific chapters.
CHANGES THAT AFFECT ALL CHAPTERS
Reorganization to better accommodate one-semester and two-semester sequences. Finance is taught as a one-semester course at many schools, so we moved the essential material into the first 17 chapters. The remaining chapters cover additional topics and provide more advanced treatment of the essential material in the first 17 chapters. This makes it easy for a professor teaching a one-semester course to cover the essential materials and then pick and choose from the remaining topics if time permits. If finance is taught in a two-semester sequence, the first semester can focus on the essential materials in the first 17 chapters and the second semester can focus on advanced materials in the remaining chapters, perhaps supplemented with cases.
The global economic crisis. In virtually every chapter we use real world examples to show how the chapter’s topics are related to some aspect of the global economic crisis. In addition, many chapters have new “Global Economic Crisis” boxes that focus on particularly important issues related to the crisis.
The big picture. Students often fail to see the forest for the trees, and this is especially true in finance because students must learn new vocabularies and analytical tools. To help students understand the big picture and integrate the different parts into an overall framework, we have added a graphic at the beginning of each chapter (and in the PowerPoint shows) That clearly illustrates where the chapter’stopics fit into the big picture. Following is an example from Chapter 9:
Signficant Reorganization of Some Chapters
Financial markets and performance measures. Chapter 1 still addresses the financial environment, but now is followed by two chapters focused on measuring the firm’s performance in the financial environment by understanding financial statements, calculating free cash flow, and analyzing ratios.
Time value of money and bond valuation. Chapter 4 covers the time value of money and Chapter 5 applies these concepts to bond pricing. Thus, students learn a tool and then immediately use the tool.
Dividends and stock repurchases before capital structure decisions. We now cover dividends and stock repurchases in Chapter 14 so that students will already understand stock repurchases when we discuss recapitalizations in Chapter 15.
Notable Changes within Selected Chapters
We made too many small improvements within each chapter to mention them all, but some of the more notable ones are discussed below.
Chapter 1: An Overview of Financial Management and the Financial Environment. We added a new box on globalization, “Columbus Was Wrong— the World Is Flat! And Hot, and Crowded,” and a new box on the global economic crisis, “Say Hello to the Global Economic Crisis!” We completely rewrote the section on financial securities, including a discussion of securitization, and added a new section on the global crisis. New figures showing the national debt, trade balances, federal budget deficits and the Case-Shiller real estate index help us better illustrate different aspects of the global crisis.
Chapter 2: Financial Statements, Cash Flow, and Taxes. A new opening vignette shows the cash that several different companies generated and the different ways that they used the cash flow. We added a new box on the global economic crisis that explains the problems associates with off-balance-sheet assets, “Let’sPlayHideand-Seek!” We added a new figure illustrating the uses of free cash flow. We now have two end-of-chapter spreadsheet problems, one focusing on the articulation between the income statement and statement of cash flows, and one focusing on free cash flow.
Chapter 3: Analysis of Financial Statements. We added a new box on marking to market, “The Price is Right! (Or Wrong!),” and a new box on international accounting standards, “The World Might be Flat, but Global Accounting is Bumpy!
The Case of IFRS versus FASB.” We have included discussion of the price/EBITDA ratio, gross profit margin, and operating profit margin; We also explain how to use the statement of cash flows in financial analysis.
Chapter 4: Time Value of Money. We added three new boxes: (1) “Hints on Using Financial Calculators,” (2) “Variable Annuities: Good or Bad?”, and (3) “An
Accident Waiting to Happen: Option Reset Adjustable Rate Mortgages.”
Chapter 5: Bonds, Bond Valuation, and Interest Rates. We added four new boxes related to the global economic crisis: (1) “Betting With or Against the U. S. Government: The Case of Treasury Bond Credit Default Swaps,” (2) “Insuring with Credit Default Swaps: Let the Buyer Beware!” (3) “Might the U. S. Treasury Bond Be Downgraded?” and (4) “Are Investors Rational?” We also added a new table summarizing corporate bond default rates and annual changes in ratings.
Chapter 6: Risk, Return, and the Capital Asset Pricing Model. The new opening vignette discusses the recent stock market and compares the market’sreturnstoGE’s returns. We added a new box on the risk that remains even for long-term investors, “What Does Risk Really Mean?” We added two additional boxes on risk, “How Risky Is a Large Portfolio of Stocks?” and “Another Kind of Risk: The Bernie Madoff Story.”
Chapter 7: Stocks, Stock Valuation, and Stock Market Equilibrium. A new opening vignette discusses buy- and sell-side analysts. We added a new box on behavioral issues, “Rational Behavior vs. Animal Spirits, Herding, and Anchoring Bias.” We added a new section, “The Market Stock Price vs. Intrinsic Value.”
Chapter 8: Financial Options and Applications in Corporate Finance. We completely rewrote the description of the binomial option pricing model. In addition to the hedge portfolio, we also discuss replicating portfolios. We now provide the binomial formula and we show the complete solution to the 2-period model. To provide greater continuity, the company used to illustrate the binomial example is now the same company used to illustrate the Black-Scholes model. Our discussion of put options now includes the Black-Scholes put formula.
Chapter 9: The Cost of Capital. We added a new figure to highlight the similarities and differences among capital structure weights based on book values, market values, and target values. We added a new box, “GE and Warren Buffett: The Cost of Preferred Stock.” We completely rewrote our discussion of the market risk premium, which now includes the impact of stock repurchases on estimating the market risk premium. We also present data from surveys identifying the market risk premia used by CFOs and professors.
Chapter 10: The Basics of Capital Budgeting: Evaluating Cash Flows. We added a new box, “Why NPV is Better than IRR.”
Chapter 11: Cash Flow Estimation and Risk Analysis. We now show how to use tornado diagrams in sensitivity analysis. We rewrote our discussion of Monte Carlo simulation and show how to conduct a simulation analysis without using addins but instead using only Excel’s built-in features (Data Tables and random number generators). We have included an example of replacement analysis and an example of a decision tree showing abandonment. We added a new box, “Are Bank Stress Tests Stressful Enough?”
Chapter 12: Financial Planning and Forecasting Financial Statements. It is difficult to do financial planning without using spreadsheet software, so we completely rewrote the chapter and explicitly integrated the text and the Excel Tool
Kit model. We illustrate the ways that financial policies (i. E., dividend payout and capital structure choices) Affect financial projections, including ways to ensure that balance sheets balance. The Excel Tool Kit model now shows a very simple way to incorporate financing feedback effects.
Chapter 13: Corporate Valuation, Value-Based Management, and Corporate Governance. The new opening vignette discusses the role of corporate governance in the global economic crisis. We also added three new boxes. The first describes corporate governance issues at IBM, “Let’s Go to Miami! IBM’s 2009 Annual Meeting.”
The second discusses leadership at bailout recipients, “Would the U. S. Government be an Effective Board Director?” The third discusses the 2009 proxy season, “Shareholder Reactions to the Crisis.”
Chapter 14: Distributions to Shareholders: Dividends and Repurchases. We consolidated the coverage of stock repurchases that had been spread over two chapters and located it here, which now precedes our discussion of capital structure in Chapter 15. We also use the FCF valuation model to illustrate the different impacts of stock repurchases versus dividend payments. We added two new boxes. The first discusses recent dividend cuts, “Will Dividends Ever Be the Same?” and the second discusses Sun Microsystem’s stock splits and recent reverse split, “Talk About a Split Personality!”
Chapter 15: Capital Structure Decisions. The new opening vignette discusses recent bankruptcies and Black & Decker efforts to reduce liquidity risk by refinancing short-term debt with long-term debt. Because the stock repurchases are now covered in the preceding chapter, we were able to improve our discussion of recapitalizations within the context of the FCF valuation model. We added a new box, “Deleveraging” that discusses the changes in leverage many companies and individuals are making in light of the global economic crisis.
Chapter 16: Working Capital Management. We reorganized the chapter so that we now discuss working capital holdings and financing before discussing the cash conversion cycle. We rewrote our coverage of the cash conversion cycle to explain the general concepts and then apply them to actual financial statement data. We added the box “Some Firms Operate with Negative Working Capital!” and a new section on the cost of cost of bank loans.
Chapter 17: Multinational Financial Management. We added a new opening vignette on the global economic crisis and its impact on world economies, foreign direct investment, and cross-border M&As. We added two new boxes, the first on regulating international bribery and taxation, “Greasing the Wheels of International Business.” The second new box discusses the wave of foreign companies partnering with Chinese banks to provide consumer finance services, “Consumer Finance in China.”
Chapter 18: Lease Financing. The new opening vignette discusses Virgin Atlantic’s order of 10 Airbus jets to be leased from AerCap. A new box addresses the FASB/IASB movement to capitalize all leases, “Off-Balance Sheet Financing: Is it Going to Disappear?”
Chapter 19: Hybrid Financing: Preferred Stock, Warrants, and Convertibles. The new opening vignette discusses the Treasury Department’s use of preferred stock and warrants to support troubled companies. A new box discusses the use of paymentin-kind preferred stock in the merger of Dow Chemical Company and Rohm & Haas, “The Romance Had No Chemistry, But It Had a Lot of Preferred Stock!”
Chapter 20: Initial Public Offerings, Investment Banking, and Financial Restructuring. The new opening vignette discusses three companies that recently raised capital via an initial public offering, a seasoned stock offering, and a debt offering. We added a new section on investment banking activities. We added a new box on “Investment Banks and the Global Economic Crisis.”
Chapter 21: Mergers, LBOs, Divestitures, and Holding Companies. We added a section explaining how the stock-swap ratio is determined for mergers where the payment is in the form of the acquiring company’s stock.
Chapter 22: Bankruptcy, Reorganization, and Liquidation. The new opening vignette discusses the bankruptcies of Lehman Brothers, Washington Mutual, Chrysler, and General Motors. We added a new box on personal and small business bankruptcies, “A Nation of Defaulters?”.
Chapter 23: Derivatives and Risk Management. The new opening vignette discusses risk management at Koch Industries, Navistar, and Pepsi. We added a new box on “Value at Risk and Enterprise Risk Management.” Throughout the chapter we discuss the failure of risk management during the global economic crisis.
Chapter 24: Portfolio Theory, Asset Pricing Models, and Behavioral Finance. We added a box on the WSJ contest between dart-throwers and investors, “Skill or Luck?”. We expanded our discussion of the Fama-French 3-factor model and included a table showing returns of portfolios formed by sorting on size and the bookto-market ratio.
Chapter 25: Real Options. The new opening vignette discusses Honda’s flexible manufacturing plants.
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