Financial Analysis and Decision Making : Tools and Techniques to Solve Financial Problems and Make Effective Business Decisions

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ISBN: 9780071406659 | 0071406654
Cover: Hardcover
Copyright: 11/20/2002

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A solid understanding of financial analysis is an essentialshy;shy;but often overlookedshy;shy;prerequisite to making key strategic decisions.Financial Analysis and Decision Making explains how all professionals can use the tools and techniques of financial analysis to define problems, gather and organize relevant information, and improve problem-solving skills.David E. Vance, C.P.A., is an instructor in the M.B.A. program at Rutgers University School of Business and director of executive development for the Rohrer Center for Management and Entrepreneurship.

Preface	p. xi
Acknowledgments	p. xv
Financial Statements and Accounting Concepts	p. 1
Income Statement	p. 1
Balance Sheet	p. 5
Statement of Cash Flows	p. 10
Accounting Definitions	p. 13
Generally Accepted Accounting Principles	p. 14
Summary	p. 17
Financial Ratios and Other Measures of Performance	p. 19
Measurement of Operating Performance	p. 19
Measures of Financial Performance	p. 30
Risk Measurement	p. 38
Cautions on Ratios	p. 47
Summary	p. 48
Factors Determining Interest Rates and Required Debt Yields	p. 51
Components of Interest: Risk-Free Rate of Return, Default, Liquidity, and Maturity Risk Premiums	p. 52
Effect of Supply and Demand on Interest Rates	p. 56
Summary	p. 65
Forecasting Yield and Risk	p. 67
Forecasting with A Priori Probabilities	p. 68
Forecasting with Historical Data	p. 75
Using Expected Values and Standard Deviations to Make Decisions	p. 77
Portfolio Theory	p. 81
How to Use Required Rate of Return	p. 85
Summary	p. 85
Time Value of Money	p. 87
Four Classes of Time Value Problems	p. 87
Future Value	p. 88
Future Value: Annual Growth Rates	p. 90
Future Value Formula	p. 90
Present Value Theory and Mathematical Formula	p. 91
Present Value Using Tables	p. 92
Present Value of an Annuity	p. 94
Loan Payments	p. 94
Loan Amortization Schedules	p. 96
Mathematical Formula for Present Value of an Annuity	p. 98
Future Value of an Annuity	p. 98
Mathematical Formula for Future Value of an Annuity	p. 99
Summary	p. 100
Bond Valuation	p. 101
Bond Valuation	p. 101
Callable Bonds	p. 104
Convertible Bonds	p. 106
Bond Yield	p. 107
Yield to Call	p. 112
Interpolation Theory	p. 114
Summary	p. 116
Leases	p. 119
Operating Versus Capital Leases	p. 119
Imputed Interest Rates	p. 120
Effect of Deposits and Prepayments on the Imputed Interest Rate	p. 122
Capitalizing Leases	p. 125
Summary	p. 128
Stock Valuation	p. 129
Stock Valuation	p. 129
Computing Stock Value	p. 132
Stock Yield	p. 136
Stock Valuation Based on Cash Flow	p. 136
Stock Valuation Based on Earnings	p. 138
Stock Valuation Based on Sales	p. 140
Summary	p. 142
Cost of Capital	p. 143
Cost of Debt Capital	p. 143
Cost of Preferred Stock Capital	p. 144
Cost of Common Equity	p. 145
Cost of New Common Equity Capital	p. 148
Cost-Free Capital	p. 151
Weighted Average Cost of Capital (WACC)	p. 151
When Should New Common Stock Be Issued?	p. 154
Cost of Leased Capital	p. 158
Marginal Cost of Capital	p. 158
Decision Rules for the Optimal Capital Budget	p. 160
Summary	p. 162
Capital Budgeting	p. 165
Methods for Evaluating Capital Projects	p. 166
Payback Method	p. 166
Discounted Payback Method	p. 168
Net Present Value	p. 170
Internal Rate of Return	p. 171
Modified Rate of Return	p. 175
Comparison of Capital Budgeting Methods	p. 178
Summary	p. 178
Cash Flow Estimation for Capital Budgeting	p. 181
Capital Budgeting Ground Rules	p. 181
Capital Budgeting Format	p. 183
Replacement Equipment	p. 185
Inflation and Price Pressure	p. 185
Spreadsheet Modeling	p. 185
Summary	p. 187
Product Costing	p. 189
Cost Versus Expense	p. 189
Financial Accounting Versus Managerial Accounting	p. 190
Unallocated Manufacturing Overhead	p. 193
Expenses Versus Inventory	p. 197
Full Absorption Cost of Purchased Merchandise	p. 197
Make or Buy Decisions	p. 198
Managerial Accounting	p. 199
Gross Profit Versus Contribution	p. 201
Summary	p. 203
Break-Even Analysis and Modeling	p. 205
Break-Even Analysis	p. 205
Modeling Profit	p. 208
Sales Volume Break-Even	p. 210
Relevant Range	p. 212
Reality Testing	p. 212
Break-Even and Risk	p. 213
Summary	p. 216
Working Capital and Cash Budgeting	p. 217
Working Capital	p. 217
Cash Budgeting	p. 218
Opening a New Facility	p. 221
Line of Credit	p. 226
Seasonal Cash Demand	p. 228
Managing Working Capital	p. 230
Summary	p. 248
Master Budgets and Variance Analysis	p. 251
Basic Budgets	p. 252
Master Budgets	p. 253
Master Budgets Versus Financial Statements	p. 259
Supplemental Budgets	p. 261
Summary	p. 261
Pricing Theory	p. 263
Cost-Centered Pricing	p. 263
Market-Centered Pricing	p. 265
Engineered Cost	p. 269
Price Elasticity	p. 270
Product Life Cycle	p. 272
Transfer Pricing	p. 273
Opportunistic Pricing	p. 275
Microeconomics Pricing	p. 277
Summary	p. 286
Advanced Cost Concepts and Allocation of Resources	p. 289
Cost Drivers	p. 289
Activity-Based Costing	p. 291
Job Costing	p. 293
Cost Drivers as a Method for Overhead Allocation	p. 297
Traditional Overhead Allocation	p. 298
Joint Products: Two Product Problem	p. 299
Theory of Constraints	p. 300
Profit Ladder	p. 303
New Product Selection	p. 307
Summary	p. 310
Labor Costs	p. 313
Overtime	p. 313
Turnover Costs	p. 315
Workers' Compensation	p. 316
Unemployment Compensation Taxes	p. 319
Summary	p. 321
Appendixes	p. 323
Future Value Interest Factor: FVIF(i, n)	p. 324
Future Value Interest Factor for an Annuity: FVIFA(i, n)	p. 326
Present Value Interest Factor: PVIF(i, n)	p. 328
Present Value Interest Factor for an Annuity: PVIFA(i, n)	p. 330
Chapter Exercises	p. 332
Exercise Answers	p. 383
Index	p. 399
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Financial Analysis and Decision Making : Tools and Techniques to Solve Financial Problems and Make Effective Business Decisions

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