Table of Contents

Course Learning Objectives. 5

Chapter 1 An Overview of Financial Management 1

Learning Objectives. 1

Objectives of Managerial Finance. 1

Profit Maximization vs. Stockholder Wealth Maximization. 1

Agency Problems. 3

Finance Decisions and Risk-Return Trade-Off. 3

Time Value of Money. 4

Importance of Finance. 5

Scope and Role of Finance. 6

Controller versus Treasurer. 7

Financial and Operating Environment 9

Corporations. 11

Conclusion. 12

Chapter 1 Review Questions. 13

Chapter 2 Financial Statements and Cash Flow.. 14

Learning Objectives. 14

What and Why of Financial Statements. 14

More on the Income Statement 17

Classified Financial Statements. 17

Statement of Cash Flows. 23

Cash Flow Analysis. 24

Other Sections of the Annual Report 29

Auditors Report 29

Notes to the Financial Statements (Footnotes). 32

How to Read a Quarterly Report 34

SEC Reporting Requirements - Integrated Disclosure System.. 35

Management's Discussion and Analysis (MD&A). 36

The Sarbanes-Oxley Act 38

Conclusion. 41

Key Points of Auditing Standard No. 5. 43

Chapter 2 Review Questions. 44

Chapter 3 Evaluating a Firm's Financial Performance. 46

Learning Objectives. 46

What and Why of Financial Statement Analysis?. 46

Horizontal Analysis. 47

Vertical Analysis. 47

Ratio Analysis. 48

Liquidity Ratios. 50

Activity (Asset Utilization, Turnover) Ratios. 58

Solvency (Leverage, Debt Service, Long-Term Debt) Ratios. 61

Profitability Ratios. 64

Market Value Ratios. 67

An Overall Evaluation ‑‑ Summary of Financial Ratios. 70

Is Ratio Analysis a Panacea?. 71

Conclusion. 71

Chapter 3 Review Questions. 74

Chapter 4 Improving Financial Performance. 76

Learning Objectives. 76

What Is Return On Investment (ROI)?. 76

What Does ROI Consist of? The Du Pont Formula. 77

How to Improve Return to Stockholders through Financial Leverage. 82

Conclusion. 85

Chapter 5 Budgeting, Planning, and Financial Forecasting. 86

Learning Objectives. 86

The Percent-of-Sales Method. 86

The Sustainable Rate of Growth. 88

How to Prepare a Budget 90

Comprehensive Illustration. 92

The Sales Budget 92

The Production Budget 93

The Direct Material Budget 93

The Direct Labor Budget 94

The Factory Overhead Budget 95

The Ending Inventory Budget 96

The Cash Budget 97

The Budgeted Income Statement 98

The Budgeted Balance Sheet 99

Some Financial Ratio Calculations. 100

Conclusion. 101

Chapter 5 Review Questions. 102

Chapter 6 The Time Value of Money. 104

Learning Objectives. 104

How to Calculate Future Values. 104

Intrayear Compounding. 105

Future Value of an Annuity. 106

What Is Present Value - How Much Money Is Worth Now?. 107

Present Value of Mixed Streams of Cash Flows. 108

Present Value of an Annuity. 109

Perpetuities. 109

The Applications of Future Values and Present Values. 110

Amortized Loans. 111

How to Develop Loan Amortization Schedules. 112

Annual Percentage Rate (APR). 112

Rates of Growth. 113

Bond Values. 114

Conclusion. 115

Chapter 6 Review Questions. 116

Chapter 7 The Meaning and Measurement of Risk and Rates of Return. 117

Learning Objectives. 117

Return on Investment 117

Arithmetic Average Return vs. Geometric Average Return. 118

What Is Expected Rate Of Return?. 120

How Is Risk Measured?. 121

Types of Risk. 123

Portfolio Theory. 124

What Is Beta?. 127

How to Read Beta. 128

The Arbitrage Pricing Model (APM). 129

Conclusion. 130

Chapter 7 Review Questions. 131

Chapter 8 Valuation of Stocks and Bonds. 132

Learning Objectives. 132

How to Value a Security. 132

What is a Bond?. 132

How to Value Bonds. 133

How Do You Calculate Yield (Effective Rate of Return) on a Bond?. 134

What Is Preferred Stock?. 136

How to Value Preferred Stock. 137

How to Calculate Expected Return from Preferred Stock. 137

What Is Common Stock?. 137

How to Value Common Stock. 138

Conclusion. 141

Chapter 8 Review Questions. 142

Chapter 9 The Cost of Capital 143

Learning Objectives. 143

Computing Individual Costs of Capital 143

Cost of Debt 143

Cost of Preferred Stock. 144

Cost of Equity Capital 145

Measuring the Overall Cost of Capital 147

Level of Financing and the Marginal Cost of Capital (MCC). 149

Conclusion. 152

Chapter 9 Review Questions. 153

Chapter 10 Capital Budgeting: Techniques and Practice. 154

Learning Objectives. 154

What are the Types of Investment Projects?. 154

What Are the Features of Investment Projects?. 155

How Do You Measure Investment Worth?. 155

How to Select the Best Mix of Projects with a Limited Budget 159

How to Handle Mutually Exclusive Investments. 161

How Do Income Taxes Affect Investment Decisions?. 162

Types of Depreciation Methods. 164

Conclusion. 169

Chapter 10 Review Questions. 170

Chapter 11 Determining the Financing Mix. 171

Learning Objectives. 171

Break-Even Analysis, Operating Leverage, and Financial Leverage. 171

Tools of Capital Structure Management 175

Capital Structure Decisions in Practice. 180

Conclusion. 181

Chapter 11 Review Questions. 182

Chapter 12 Managing Liquid Assets. 183

Learning Objectives. 183

Evaluating Working Capital 183

Cash Management 184

Delay Frequency of Paying Employees. 190

Cash Models. 190

Banking Relationships. 192

Investing In Marketable Securities. 193

Management of Accounts Receivable. 193

Inventory Management 201

Conclusion. 208

Chapter 12 Review Questions. 209

Chapter 13 Short-Term Financing. 210

Learning Objectives. 210

Short-Term Financing. 210

Intermediate-Term Financing: Term Loans and Leasing. 226

Conclusion. 231

Chapter 13 Review Questions. 232

Chapter 14 Debt Financing. 233

Learning Objectives. 233

Types of Long-Term Debt 233

Conclusion. 241

Chapter 14 Review Questions. 242

Chapter 15 Equity Financing. 244

Learning Objectives. 244

Issuing Equity Securities. 244

Governmental Regulation. 253

Selecting a Financing Method. 254

Investment Banking. 258

Conclusion. 261

Chapter 15 Review Questions. 262

Chapter 16 International Finance. 263

Learning Objectives. 263

Foreign Operations. 263

The Foreign Exchange Market 266

Financial Strategies. 269

Translation Exposure. 270

Transaction Exposure. 271

Operating Exposure. 274

Impacts of Changes in Foreign Exchange Rates. 274

Interest Rates. 275

Inflation. 277

Examples of Political Risks. 278

International Financing. 279

Chapter 16 Review Questions. 282

Review Question Answers. 284

Appendix. 330

Glossary. 334

Index. 359

CPE Exam Answer Sheet 360

Final Examination. 362

CPASelfstudy.com Course Evaluation. 375