Corporate Finance, Theory and Practice, Second Edition

By Gill, Suveera | South Asian Journal of Management, July-September 2011 | Go to article overview
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Corporate Finance, Theory and Practice, Second Edition

Gill, Suveera, South Asian Journal of Management

Corporate Finance, Theory and Practice, Second Edition, By Vishivanath S R Response Books, New Delhi, 2007; Pages: 763; Price ?450 ISBN 978-0-7619-3497-4

Finance is concerned with the manner in which individuals and firms allocate resources across assets and over time. The developed body of financial knowledge deals with portfolio decisions of individuals, with investment and financing decisions by firms, and with implication of such behavior for the pricing of capital assets in the marketplace. The aim of the book is to provide a rigorous understanding of how and why firms make their financial decisions the way they do and their impact on shareholder value. The central theme of the book is value-based management, which presupposes that maximizing shareholder value is the governing objective of a firm.

Section one of the book, Building Blocks provides an introduction to financial management as well as simplified exposition on topics like fundamental concepts of valuation, risk and return, cost of capital and financial statement analysis. The first chapter provides an introduction to the goal of financial management together with factors affecting value creation and corporate governance practices around the world. The conceptual background material has been presented in chapters 2 through 4. Chapter 5 introduces to important financial tools which find extensive application in appraising credit risk, capital structure planning, and financial planning. The last two chapters of this section specifically demonstrate the application of financial statement analysis in a real life setting.

Section two, Capital Investments offers an insight into how managers evaluate capital investments using different techniques of valuation both under certainty (chapters 8 to 1 0) and uncertainty (chapters 1 1 and 12). Chapter 1 2 especially focuses on corporate financial flexibility provided by the use of real options in investment decisions under uncertainty. Examples of simple call and put options have been cited in the chapter. The link between capital budgeting and corporate strategy as well as capital budgeting practices amongst select countries covered in chapter 13 brings forth practical utility of the concept.

Section three, Managing Current Assets focuses on short term planning with management of cash as well as receivables. Chapter 14 clarifies as to why the focus of working capital management should be on underlying business drivers and not merely the financial ratios. Chapter 16 amplifies nuances of cash management including cash flow timeliries, strategies for accelerating cash receipts and decelerating cash disbursements, as well as cash forecasting and budgeting. Chapter 17 centers on motivations for making credit sales and the imperative of making speedy collections of the same. Case studies of Bharti Dredging and Construction Limited (chapter 15) as well as SM Electric (India) Limited (Chapter 18) demonstrate the application of theoretical current assets management in a real-life situation.

A detailed overview of Corporate Financing has been laid out under section four. Chapter 19 discusses theories of optimal capital structure including how managers make financing decisions. Chapter 20 besides dealing with the design and pricing of a wide range of financial instruments provides an understanding of how financial engineering can be used to advance the strategic goals of firms. This section also brings forth matter on topics like initial public offerings (chapter 21), bank loans (chapter 22), debt markets (chapter 24) and leasing (chapter 29).

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