Fundamentals of Financial Management
Many approaches might be used in teaching the basic financial management course. Fundamentals of Financial Management sequences things in order to cover certain foundation material first, including: the role of financial management; the business, tax, and financial setting; the mathematics of finance; basic valuation concepts; the idea of a trade off between risk and return; and financial analysis, planning, and control. Given a coverage of these topics, we then have found it easier to build upon this base in the subsequent teaching of financial management.
More specifically, the book goes on to investigate current asset and liability decisions and then moves on to consider longer-term assets and financing. A good deal of emphasis is placed on working-capital management. This is because we have found that people tend to face problems here when going into entry-level business positions to a greater extent than they do to other asset and financing area problems.
Nonetheless, capital budgeting, capital structure decisions, and long-term financing are very important, particularly considering the theoretical advances in finance in recent years. These areas have not been slighted. Many of the newer frontiers of finance are explored in the book. In fact, one of the book’s distinguishing features is its ability to expose the student reader to many new concepts in modern finance. By design, this exposure is mainly verbal with only limited use of mathematics. The last section of the book deals with the more specialized topics of: convertibles, exchangeables, and warrants; mergers and other forms of corporate restructuring; and international financial management.
While the book may be used without any formal prerequisites, often the student will have had an introductory course in accounting and economics (and perhaps a course in statistics). Completion of these courses allows the instructor to proceed more rapidly over financial analysis, capital budgeting, and certain other topics. The book has a total of twelve appendices, which deal with more advanced issues and/or topics of special interest. The book’s continuity is not adversely affected if these appendices are omitted. While we feel that all of the appendices are relevant for a thorough understanding of financial management, the instructor can choose those most appropriate to his or her course.
If the book is used in its entirety, the appropriate time frame is a semester or, perhaps, two quarters. For the one-quarter basic finance course, we have found it necessary to omit coverage of certain chapters. However, it is still possible to maintain the book’s thrust of providing a fundamental understanding of financial management. For the one-quarter course, the following sequencing has proven manageable:
- Chapter 1: The Role of Financial Management
- Chapter 2: The Business, Tax, and Financial Environments
- Chapter 3 THE TIME VALUE OF MONEY
- Chapter 4 THE VALUATION OF LONG-TERM SECURITIES*
- Chapter 5 RISK AND RETURN*
- Chapter 6 FINANCIAL STATEMENT ANALYSIS*
- Chapter 7 FUNDS ANALYSIS, CASH-FLOW ANALYSIS, AND FINANCIAL PLANNING*
- Chapter 8 OVERVIEW OF WORKING CAPITAL MANAGEMENT
- Chapter 9 CASH AND MARKETABLE SECURITIES MANAGEMENT
- Chapter 10 ACCOUNTS RECEIVABLE AND INVENTORY MANAGEMENT
- Chapter 11 SHORT-TERM FINANCING
- Chapter 12 CAPITAL BUDGETING AND ESTIMATING CASH FLOWS
- Chapter 13 CAPITAL BUDGETING TECHNIQUES
- Chapter 14 RISK AND MANAGERIAL (REAL) OPTIONS IN CAPITAL BUDGETING
- Chapter 15 REQUIRED RETURNS AND THE COST OF CAPITAL
- Chapter 16 OPERATING AND FINANCIAL LEVERAGE
- Chapter 17 CAPITAL STRUCTURE DETERMINATION
- Chapter 18 DIVIDEND POLICY
- Chapter 19 THE CAPITAL MARKET
- Chapter 20 LONG-TERM DEBT, PREFERRED STOCK, AND COMMON STOCK
- Chapter 21 TERM LOANS AND LEASES