Corporate Finance For Dummies, 2ed

Introduction

About This Book  

Foolish Assumptions  

Icons Used in This Book  

New to this Edition  

Beyond the Book  

Where to Go from Here  

Part 1: What's Unique about Corporate Finance 

Chapter 1: The Tale of Corporate Finance

• Telling a Story with Numbers  
• Characterizing Motivations  
• The role of financial institutions  
• Defining investing  
• Setting the Stage

Chapter 2: Introducing Finance Land

• Visiting the Main Attractions in Finance Land  
• Corporations  
• Depository institutions  
• Insurance companies  
• Securities firms  
• Underwriters  
• Funds  
• Financing institutions  
• Exchanges  
• Regulatory bodies  
• Federal Reserve and U.S Treasury  
• Getting a Job in Finance Land  
• Accounts payable and/or receivable  
• HR and payroll  
• Analysts  
• Auditors  
• Adjusters  
• Bookkeepers and accountants  
• Modelers and scientists  
• Economists and consultants  
• Traders  
• Treasurers  
• Bankers and more  
• Visiting the Finance Land Information Center  
• Internet sources  
• Print sources  
• Human sources  

Chapter 3: Pitching Your Story for Money

• Raising Capital  
• Diving into Debt  
• Asking the right people for money  
• Making sure the loan pays off in the long run  
• Looking at loan terms  
• Schmoozing Investors  
• Selling stock to the public  
• Looking at the different types of stock  
• Having Your Wish Granted  

Part 2: Making a Statement 

Chapter 4: Staying Balanced

• Introducing the Balance Sheet  
• Evaluating the Weights on the Balance Scale  
• Understanding Assets  
• Current assets  
• Long-term assets  
• Intangible assets  
• Other assets  
• Learning about Liabilities  
• Current liabilities  
• Long-term liabilities  
• Eyeing Owners' Equity  
• Preferred shares  
• Common shares  
• Treasury shares  
• Additional paid-in capital  
• Retained earnings  
• Finding Financial Zen  

Chapter 5: Incoming Income

• Adding It Up  
• Gross profit  
• Operating income  
• Earnings before interest and taxes (EBIT).  
• Net income  
• Earnings per share  
• Supplemental notes  
• Putting the Income Statement to Good Use  

Chapter 6: Going with the (Cash) Flow

• Moving Along Three Smooth Flows  
• Operating cash flows  
• Investing cash flows  
• Financing cash flows  
• Combining the three types of operations to get the net change in cash  
• Reaching Your Destination  

Chapter 7: Mastering Metrics

• Paying the Bills  
• Days sales in receivables  
• Accounts receivables turnover  
• Accounts receivables turnover in days  
• Days sales in inventory  
• Inventory turnover  
• Inventory turnover in days  
• Operating cycle  
• Working capital  
• Current ratio  
• Acid test ratio (aka Quick Ratio).  
• Cash ratio  
• Sales to working capital  
• Operating cash flows to current maturities  
• Working Your Assets  
• Net profit margin  
• Total asset turnover  
• Return on assets  
• Operating income margin  
• Operating asset turnover  
• Return on operating assets  
• Return on total equity  
• Return on common equity  
• DuPont equation  
• Fixed asset turnover  
• Return on investment  
• Gross profit margin  
• Operating ratio  
• Percent earned on operating property  
• Operating revenue to operating property ratio  
• Long-term debt to operating property ratio  

Chapter 8: Calculating Capital

• Sizing Up Shareholders  
• Financial leverage  
• Earnings per common share  
• Operating cash flows per share  
• Price to earnings ratio  
• Percentage of earnings retained  
• Dividend payout  
• Dividend yield  
• Book value per share  
• Cash dividend coverage ratio  
• Banking on Metrics  
• Earning assets to total assets ratio  
• Net interest margin  
• Loan loss coverage ratio  
• Equity to total assets ratio  
• Deposits times capital  
• Loans to deposits ratio  
• Keeping Debt Healthy  
• Times interest earned  
• Fixed charge coverage  
• Debt ratio  
• Debt to equity ratio  
• Debt to tangible net worth  
• Operating cash flows to total debt  
• Equity multiplier  

Part 3: Valuations on the Price Tags of Business 

Chapter 9: Determining Present and Future Values: Time Is Money

• Losing Value over Time  
• Inflation  
• Interest rates  
• Predicting Future Value  
• Simple interest  
• Compound interest  
• Calculating the Present Value  
• A closer look at earnings  
• Discounted cash flows  

Chapter 10: Calling in the Cavalry

• Budgeting Capital  
• Rating Your Returns  
• Looking at costs  
• Calculating revenue  
• Calculating the accounting rate of return  
• Making the most of the internal rate of return through modification  
• Netting Present Values  
• Calculating NPV over time  
• Managing the project's value  
• Paying It Back  
• Allocating Capital  
• Calculating the equivalent annual cost  
• Considering liquid assets  
• Managing Projects  
• Value schedule metrics  
• Budget metrics  

Chapter 11: Bonding Over Business  

• Exploring the Different Types of Bonds  
• Considering corporate bonds  
• Gauging government bonds  
• Clipping coupon bonds  
• Backing up with assets  
• Converting bonds  
• Calling it in with callable bonds  
• Putting in the effort: puttable bonds  
• Registering the bearer  
• Counting on forgiveness with catastrophe bonds  
• Junking bad bonds  
• Reviewing Bond Rates  
• Reading Bond Information  
• Understanding Bond Valuation  

Chapter 12: Savvy Stock Sales

• Exchanging Stocks  
• Looking at the Different Types of Orders  
• Market order  
• Stop and limit orders  
• Pegged order  
• Time-contingent order  
• Comparing Long and Short Stocks  
• Buying long  
• Buying on margin  
• Selling short  
• Defining Caps and Sectors  
• Caps  
• Sectors  
• Raging Bulls and Grizzly Bears  
• Beating Stock Indices?. .
• Imagining the Value of Stocks  
• Surveying equity valuation models  
• Checking out corporate analysis  
• Evaluating industry performance  
• Factoring in stock market fluctuations  
• Considering macroeconomics  

Chapter 13: Pricing Probability from Derived Value

• Deriving Value  
• Keeping Your Options Open  
• Choosing between put and call  
• Valuing an option  
• Paying It Forward  
• Agreeing to forward  
• Valuing a forward  
• Standardizing the Future  
• Predicting futures  
• Valuing futures  
• Swapping Numbers  
• Managing risk with swaps  
• Generating revenue with swaps  
• Valuing a swap  

Part 4: A Wonderland of Risk Management 

Chapter 14: Managing Uncertainty

• Understanding that Risk Is Unavoidable  
• Risking Your Interest with Inflation  
• Minimizing Market Risk  
• Giving Credit Where It's Due  
• Getting Shady with Off-Balance-Sheet Risk  
• Factoring in Foreign Exchange Risk  
• Transaction risk  
• Translation risk  
• Other foreign exchange risk  
• Identifying Operating Risk  
• Looking at Liquidity Risk  
• Sorting Your Customer's Laundry  

Chapter 15: Through the Looking Glass of Modern Portfolio Theory

• Delving into Portfolio Basics  
• Surveying portfolio management strategies  
• Looking at modern portfolio theory  
• Understanding passive versus active management  
• Joking about Market Efficiency  
• Risking Returns  
• Looking at the trade-off between risk and return  
• Diversifying to maximize returns and minimize risk  
• Considering risk aversion  
• Measuring risk  
• Optimizing Portfolio Risk  
• Reaching the efficient frontier  
• Innovating risk management  

Chapter 16: Financially Engineering Yourself Deeper Down the Rabbit Hole

• Making Securities Out of Anything  
• You can securitize everything  
• Slicing securities into tranches  
• Splicing Hybrids  
• The mixed-interest class of hybrids  
• Single asset class hybrids  
• Indexed-back CDs  
• Bundling Assets  
• Pass-through certificates  
• Multi-asset bundles  
• Unbundling  
• Exploring Exotics  
• Options  
• Swaps contracts  
• Loans  
• Engineering Finances  
• Moving into Computational Finance  
• Changing the face of trading  
• Banking from beyond  
• Building quantitative algorithms  

Chapter 17: Weighing Capital

• Calculating the Cost of Capital  
• Measuring cost of capital, the WACC way  
• Factoring in the cost of debt  
• Looking at the cost of equity  
• Dividend policy  
• Choosing the Proper Capital Structure  

Part 5: Financial Management 

Chapter 18: Assessing Financial Performance

• Analyzing Financial Success  
• Using Common-Size Comparisons  
• Vertical common-size comparisons  
• Horizontal common-size comparisons  
• Cross comparisons  
• Performing Comparatives  
• Comparison over time  
• Comparison against the industry  
• Determining the Quality of Earnings  
• Accounting concerns  
• Sources of cash flows  
• Assessing Investment Performance  
• Conventional evaluations  

Chapter 19: Forecasting Finances

• Seeing with Analytical Eyes  
• Collecting data  
• Finding an average  
• Measuring distribution  
• Calculating probability  
• Viewing the Past as New  
• Finding trends and patterns  
• Looking at regression  
• Seeing the Future Unclouded: Forecasting  
• Using statistics and probability  
• Using reference class forecasting  
• Evaluating forecast performance  

Chapter 20: Getting the Deets on M&A

• Dissecting M&A  
• Diversification  
• Geographic expansion  
• Economies of scale  
• Economies of scope  
• Vertical integration  
• Horizontal integration  
• Conglomerate integration  
• Elimination of competitors  
• Manager compensation  
• Synergistic operations  
• Moving Beyond the M and the A  
• Mergers  
• Acquisitions  
• Buyouts  
• Factoring  
• Joint ventures  
• Partnerships  
• Licensing agreements  
• Hostile takeovers  
• Divesting Is Investing  
• Measuring What a Business Is Worth to You  
• Future cash flows  
• Control premiums  
• Company worth by comparison  
• Cash-flow evaluation  
• Measures of market share  
• Financing M&A  

Part 6: The Part of Tens 

Chapter 21: Ten Things You Need to Know about International Finance

• There's No Such Thing as a Trade Imbalance  
• Purchasing Power and Exchange Rates Are Different Things  
• Interest Rates and Exchange Rates Have a Muddled Relationship  
• Spot Rate Isn't the Only Type of Currency Transaction  
• Diversification Can't Completely Eliminate Risk Exposure  
• Cross-Listing Allows Companies to Tap the World's Resources  
• Outsourcing Is a Taxing Issue  
• Politics Complicate Your Life  
• Cultural Understanding Is Vital  
• Cryptocurrencies Come with Risk  

Chapter 22: Ten Things You Need to Understand about Behavioral Finance

• Making Financial Decisions Is Never Rational  
• Being Irrational Can Be Entirely Rational  
• Framing Affects Your Decision-Making Prowess  
• Making Sound Financial Decisions Involves Identifying Logical Fallacies  
• Getting Emotional about Financial Decisions Can Leave You Crying  
• Financial Stampeding Can Get You Trampled  
• Letting Relationships Influence Finances Can Be Ruinous  
• Satisficing Is Good Enough  
• Prospect Theory Explains the Improbable  
• Being Biased Is Human Nature  

Index