Financial Strategies for the Manager

Transcription

1 Charles Priester Jincheng Wang Financial Strategies for the Manager With 35 figures Springer

2 Contents 1 Goals of Financial Management Introduction Getting More Mileage Out of a Company's Assets Important Observation What Information Do the Financial Statements Convey to the Manager AClose-Up of the Financial Statements An Important Observation about the Balance Sheet and the Income Statement Income Statement Flow of Funds Statement Example of a Flow of Funds Statement 13 2 Financial Statements Analysis Five Key Attributes of Performance Liquidity A Useful Analogy The Broad Strategy of Managing a Company's Operational Cash Flows Analytical Framework for "Speeding up the Dollar Inflow" Financial Leverage Activity or Productivity of Assets The Operating Cycle Observations about the Operating Cycle and Payable Cycle An Example : The Effect of this Strategy Another Example Profitability The DuPont Approach to Performance Analysis 32 3 A Systematic Approach to Financial Performance Appraisal of a Company Based on Trend Analysis Introduction This Systematic Approach Involves Four Stages and Is Best Explained By Using an Example Stage One 38 v

3 3.2.2 Stage Two Stage Three Stage Four An Additional Analysis Liquidity Valuation Ratios An Example of Ratio Calculations 46 4 Risk & Defensive Strategies The Concept of Leverage in Business Finance The Safety Ratio and a Company's Break-Even Level Defensive Strategies Example of Defensive Strategy An Example of a Systematic 4-stage Analysis of Case Study # Stage I Stage II Stage n Stage IV Valuation Ratios RR Distributors Analysis Continued 61 5 Liquidity Management and Sales Growth Going Broke While Selling More Than Ever Liquidity and Sales Growth Is Rapid Growth in Sales Good News or Bad News 64 ov Working Capital Management Introduction Modern Communication Technology and the Smaller Company Current Assets Cash and Liquidity Management First Current Asset, Operating Cash Second Current Asset Receivables Inventory Management Business Intelligence The Key Asset Inventory Richness Two Approaches in Measuring the Costs of Receivables and Inventories Receivables Management Introduction Receivables Management Summary Inventory Management Introduction Inventory Management 82 vi

4 6.9 Operational Cash Management Introduction Global Distributing Example Fluctuating Short-Term Debt Cash Management Some Useful Questions to Ask Accounts Payable Management Summary Investment Analysis Introduction Investment Analysis Summary 96 7 Fixed Assets Capital Budgeting Example of a Typical Capitalization of a Canadian Corporation An Example of Spreadsheets Used for Capital Budgeting The Analysis of "Financial Leasing" Cash Flow Lease Analysis (Best Performed Using Spreadsheets as a Tool) General Observation Budgeting Introduction Less Common Financial Ratios for Use in Budget Design and Performance Appraisal Ill 8.3 A Particular Type of Budgeting: Pro-Forma Statement Building Example of Pro-Forma Statement Building Based on the 1998 Financial Statements of Electronic Distributors Case # Economic Value Added Using Economic Value Added (EVA) as a Strategic Evaluation Tool A Fresh Look at the Balance Sheet What About EVA Levels To Calculate EVA We Need to Know the WACC% The Debt/Equity Mix's Effect on WACC% Strategies to Raise EVA Three Measures of Financial Performance Financial Goal-Setting Using EVA Calculating EVA 123 vii

5 9.8.2 Conclusion Approach One Approach Two Approach Three Approach Four Summary Some Additional Thoughts about EVA-Enhancing Strategies Foreign Exchange and Interest Rate Risk Management Introduction Foreign Exchange Risk Management Techniques FX Forward Contracts Foreign Currency Futures FX Futures Contracts Important Differences and Similarities Between FX Forward and FX Future Contracts FX Options Interest Rate Risk Management Mergers, Acquisitions and Private Equity Introduction Synergy Acquisition vs. Merger Paying for the Purchase Valuation Which Companies are Doing Most of the Buying Private Equity Firms Obtain Their Funding in Private Markets Categories of Private Equity Investments Include Will the Explosive Growth of Mergers and Acquisitions Activities Continue How Long Can This Go On 149 Appendix A Solutions to Exercises 156 Appendix B Case Studies 1.15 (Solutions to Case Studies 1, 4 and 14) 173 Appendix C Glossary 212 VIII