Lessons In Corporate Finance, Second Edition – A Case Studies Approach To Financial Tools, Financial Policies, And Valuation

An intuitive introduction to fundamental corporate finance concepts and methods

Lessons in Corporate Finance, Second Edition offers a comprehensive introduction to the subject, using a unique interactive question and answer-based approach. Asking a series of increasingly difficult questions, this text provides both conceptual insight and specific numerical examples. Detailed case studies encourage class discussion and provide real-world context for financial concepts. The book provides a thorough coverage of corporate finance including ratio and pro forma analysis, capital structure theory, investment and financial policy decisions, and valuation and cash flows provides a solid foundational knowledge of essential topics. This revised and updated second edition includes new coverage of the U.S. Tax Cuts and Jobs Act of 2017 and its implications for corporate finance valuation.

Written by acclaimed professors from MIT and Tufts University, this innovative text integrates academic research with practical application to provide an in-depth learning experience. Chapter summaries and appendices increase student comprehension. Material is presented from the perspective of real-world chief financial officers making decisions about how firms obtain and allocate capital, including how to:

• Manage cash flow and make good investment and financing decisions

• Understand the five essential valuation methods and their sub-families
• Execute leveraged buyouts, private equity financing, and mergers and acquisitions
• Apply basic corporate finance tools, techniques, and policies

 Lessons in Corporate Finance, Second Edition provides an accessible and engaging introduction to the basic methods and principles of corporate finance. From determining a firm’s financial health to valuation nuances, this text provides the essential groundwork for independent investigation and advanced study. 

About the Authors xiii

Acknowledgments xv

Preface xvii

Chapter 1 Introduction 1

Two Markets: Product and Capital 2

The Basics: Tools and Techniques 3

A Diagram of Corporate Finance 4

A Brief History of Modern Finance 5

Reading This Book 6

Part One Financial Health of a Firm and Cash Flow Management

Chapter 2 Determining a Firm’s Financial Health (PIPES-A) 11

The Conversation with the Banker Is Like a Job Interview 11

Starting with the Product Market Strategy 13

Is PIPES Profitable? 14

Doing the Math 14

Sources and Uses of Funds 16

Ratio Analysis 20

The Cash Cycle 26

Summary 28

Chapter 3 Pro Forma Forecasts (PIPES-B) 31

First, Let’s Take a Closer Look at Ratio Analysis 31

Pro Forma Forecasts 33

Circular Relationships 40

Back to (Forecasting) the Future 42

Projecting Out to 2018 and 2019 43

Evaluating the Loan 45

Summary 50

Appendix 3A: Accounting Is Not Economic Reality 52

Chapter 4 The Impact of Seasonality on a Firm’s Funding (PIPES-C) 57

Monthly Pro Forma Income Statements 58

Monthly Pro Forma Balance Sheets 60

A Different Picture of the Firm 68

Summary 72

Appendix 4A: PIPES Monthly Pro Forma Income Statements and Balance Sheets, 2018 73

Appendix 4B: PIPES Monthly Pro Forma Income Statements and Balance Sheets, 2019 76

Part Two Firm Financing and Financial Policies

Chapter 5 Why Financing Matters (Massey Ferguson) 81

Product Market Position and Strategy 81

Political Risk and Economies of Scale in Production 82

Massey Ferguson, 1971–1976 83

Sustainable Growth 85

The Period after 1976 87

Conrad Runs Away 90

The Competitors 91<