Financial Management combines theory with practical applications. It begins with the discussion of fundamental concepts of value and return,risk and return relationship and valuation of shares and bonds. With this foundation, readers can easily understand the theories and methods, decision criteria, and financial policies and strategies necessary to manage funds and create and enhance the value of the firm.
Financial Management in its eleventh edition, like in its previous editions, highlights the ‘modern’, analytical approach to corporate finance decision-making. The text material has been structured to focus on finance theory and its implications in the financial decision-making process and policy. The book discusses the theories, concepts, assumptions, and the mechanics underlying financial decisions, viz., investment, financing, dividend, and working capital management. It also discusses sources and instruments of short-term and long-term finances, mergers and acquisitions, international financial management and the interface between financial and corporate policies. Importantly, the book helps students to relate theories and concepts to practice.
The main features of the book are as follows:
1. Excel applications Proficiency with spreadsheets and Excel is a great advantage to financial analysts and managers and a necessity for all the postgraduate students of management, commerce and accounting courses. With this in mind, at appropriate places, Excel Applications have been created showing how spreadsheets with the help of Excel could be used to solve finance problems and take decisions. These have also been identified in the Contents.
2. Web links for financial data Students must know how to access financial data and information on the Internet. With this in mind, a list of useful web links has been created to help readers retrieve useful financial information.
3. Illustrative problems Finance decisions involve solving problems using theoretical concepts. The book contains solved illustrations showing readers how concepts could be used to solve problems and take decisions.
4. Real-life examples The book contains a large number of real-life cases and examples to illustrate the practical applications of finance theories and concepts.
5. Cases Most chapters include mini cases that reflect the applications of the conceptual material in the chapters.
6. Key concepts For the benefit of readers, the key concepts of each chapter have been listed at the end of the chapter.
7. Practical project Most chapters have a ‘Practical Project’ each where students are helped to apply their knowledge to real company situations.
Beta calculation in practice Over the past few years, the use of beta in decision-making has increased in India. The National Stock Exchange (www.nse-india.com) gives beta based on daily share prices for a one-year period for a number of companies. This information may not be useful when we require beta based on a longer time period or for different time periods. Chapter 6 shows how beta can be calculated for a real company in practice. Thus, use of ‘Regression function’ of Excel has been demonstrated to calculate beta.
Valuation and governance Managers are required to maximize the shareholder value. This needs a clear understanding of cash flows and discount rate and the financing impact. In practice, a number of managers are not able to understand the inter-relationships. Chapter 16 integrates cash flows, discount rate, financing and valuation. This material is further extended to shareholder value and corporate governance in Chapter 35.
Cost of capital The cost of capital is a contentious topic in finance. Its calculation could be quite tedious in practice. With the help of a real world company, its calculation has been demonstrated in Chapter 9. In Chapter 16, the effect of changes in capital structure on beta and the cost of capital has been analysed.
Nature of Financial Management, Concepts of Value and Return, Valuation of Bonds and Shares, Risk and Return: An Overview of Capital Market Theory, Risk and Return: Portfolio Theory and Assets Pricing Models, Beta Estimation And The Cost Of Equity, Options And Their Valuation,
Part 2: Investment Decisions:
Capital Budgeting Decisions, The Cost of Capital, Determining Cash Flows for Investment Analysis, Complex Investment Decisions, Risk Analysis in Capital Budgeting, Real Options, Investment Strategy and Process,
Part 3:Financing and Dividend Decisions:
Financial and Operating Leverage, Capital Structure: Theory and Policy, Valuation and Financing, Dividend Theory, Dividend Policy,
Part 4: Long-term Financing:
Capital Market Efficiency and Capital Markets in India, Long-Term Finance: Shares, Debentures and Term Loans, Convertible Debentures and Warrants, Asset-Based: Lease, Hire Purchase and Project Financing, Venture Capital Financing,
Part 5: Financial and Profit Analysis:
Financial Statements and Cash Flow Analysis, Financial Statement Analysis, Financial Planning and Strategy,
Part 6: Working Capital Management:
Principles Of Working Capital Management, Receivables Management And Factoring, Inventory Management, Cash Management, Working Capital Finance,
Part 7: Managing Value and Risk:
Corporate Restructuring, Mergers and Acquisitions, Derivatives for Managing Financial Risk, International Financial Management, Shareholder Value and Corporate Governance,
Part 8: Annexure