Corporate Finance: Theory and Practice, 6th Edition

Preface viii

Frequently Used Symbols xii

1 What is Corporate Finance? 1

Section I Financial Analysis 15

Part One Fundamental Concepts in Financial Analysis 17

2 Cash Flow 19

3 Earnings 29

4 Capital Employed and Invested Capital 44

5 Walking Through from Earnings to Cash Flow 57

6 Getting to Grips with Consolidated Accounts 71

7 How to Cope with the Most Complex Points in Financial Accounts 89

Part Two Financial Analysis and Forecasting 115

8 How to Perform a Financial Analysis 117

9 Margin Analysis: Structure 143

10 Margin Analysis: Risks 166

11 Working Capital and Capital Expenditures 181

12 Financing 202

13 Return on Capital Employed and Return on Equity 216

14 Conclusion of Financial Analysis 236

Section II Investors and Markets 243

Part One Investment Decision Rules 245

15 The Financial Markets 247

16 The Time Value of Money and Net Present Value 268

17 The Internal Rate of Return 285

Part Two The Risk of Securities and the Required Rate of Return 299

18 Risk and Return 301

19 The Required Rate of Return 329

Part Three Financial Securities 347

20 Bonds 349

21 Other Debt Products 371

22 Shares 386

23 Options 406

24 Hybrid Securities 428

25 Selling Securities 446

Section III Value 471

26 Value and Corporate Finance 473

27 Measuring Value Creation 492

28 Investment Criteria 510

29 The Cost of Capital 528

30 Risk and Investment Analysis 545

31 Valuation Techniques 558

Section IV Corporate Financial Policies 589

Part One Capital Structure Policies 591

32 Capital Structure and the Theory of Perfect Capital Markets 593

33 Capital Structure, Taxes and Organisation Theories 605

34 Debt, Equity and Options Theory 622

35 Working Out Details: The Design of The Capital Structure 641

Part Two Equity Capital 659

36 Returning Cash to Shareholders 661

37 Distribution in Practice: Dividends and Share Buy-Backs 677 

38 Share Issues 695

39 Implementing a Debt Policy 708

Section V Financial Management 725

Part One Corporate Governance and Financial Engineering 727

40 Setting Up a Company or Financing Start-Ups 729

41 Choice of Corporate Structure 748

42 Initial Public Offerings (iPOs) 770

43 Corporate Governance 783

44 Taking Control of a Company 797

45 Mergers and Demergers 820

46 Leveraged Buyouts (LBOs) 837

47 Bankruptcy and Restructuring 852

Part Two Managing Working Capital, Cash Flows and Financial Risks 867

48 Managing Working Capital 869

49 Managing Cash Flows 881

50 Managing Financial Risks 900

Epilogue—Finance and Strategy 925

Top 20 Largest Listed Companies 933

Contents 941

Index 951

Pierre Vernimmen (deceased) Graduate of HEC and Harvard, was a founding member and first coordinator of the Finance Department at HEC, where he established himself as a leading academic in the field of corporate finance.?In 1973 he joined Paribas, initially as a private equity banker, moving onto the advisory business line (M&A, privatisations, financial restructurings) which he set up and managed from 1993 until his death in 1996.

Pascal Quiry (Paris, France) is MD in the Corporate Finance department at BNP Paribas, and affiliate professor of finance at HEC.?He leads two 8-member teams which carry out company valuations and stock exchange transactions (takeover bids, exchange offers, demergers etc.). Pascal is board member of the French Finance Association and member of the American Finance Association.

Yann Le Fur?(Paris, France) is a senior associate in the Paris Corporate Finance department of Schroder Salomon Smith Barney, and a lecturer at HEC. He co-manages a team of 5 professionals.

Maurizio Dallocchio (Milan, Italy) former Dean of the leading Italian business school Bocconi (Milan) and Lehman Brothers Chair of Corporate Finance. He is also a board member of several listed and unlisted companies and is one of the most distinguished Italian authorities on finance.

Antonio Salvi (Milan, Italy) is an Assistant Professor of Finance at Bocconi and the University of Venice where he teaches Corporate Finance. His areas of research cover cost of capital, structure of debt finance and corporate governance.