Fundamentals of Financial Management – Gain a focused understanding of today’s corporate finance and financial management with the market-leading approach in Brigham/Houston’s FUNDAMENTALS OF FINANCIAL MANAGEMENT, CONCISE EDITION, 8E.
This book’s unique balance of clear concepts, contemporary theory, and practical applications helps readers better understand the concepts and reasons behind corporate budgeting, financing, and working capital decision making. Numerous practical examples, proven end-of-chapter applications, and Integrated Cases demonstrate theory in action, while Excel Spreadsheet Models help readers master this software tool. It’s a book designed to put each reader first in finance.
When the first edition of Fundamentals was published 36 years ago, we wanted to provide an introductory text that students would find interesting and easy to understand. Fundamentals immediately became the leading undergraduate finance text, and it has maintained that position ever since. However, over the years as Fundamentals got larger and larger, we heard more and more often that it was difficult to cover the entire book in a single term. These concerns led us to create Fundamentals of Financial Management Concise 18 years ago. When designing Concise, we had in mind those instructors who wanted to retain Fundamentals’ depth and level but eliminate some less essential topics. As is the case with Fundamentals, our continuing goal is to produce a book and ancillary package that sets a new standard for finance textbooks. Finance is an exciting and continually changing field. Since the last edition, many important changes have occurred within the global financial environment. In the midst of this changing environment, it is certainly an interesting time to be a finance student. In this latest edition, we highlight and analyze the events leading to these changes from a financial perspective. While the financial environment is ever-changing, the tried-and-true principles that the book has emphasized over the past three decades are now more important than ever.
Table of Contents
Fundamentals of Financial Management – Book Structure
Our target audience is a student taking his or her first, and perhaps only, finance course. Some of these students will decide to major in finance and go on to take courses in investments, money and capital markets, and advanced corporate finance. Others will choose marketing, management, or some other nonfinance business major. Still others will major in areas other than business and take finance plus a few other business courses to gain information that will help them in law, real estate, or other fields. Our challenge has been to provide a book that serves all of these audiences well. We concluded that we should focus on the core principles of finance, including the basic topics of time value of money, risk analysis, and valuation. Fundamentals of Financial Management
Moreover, we concluded that we should address these topics from two points of view: (1) that of an investor who is seeking to make intelligent investment choices and (2) that of a business manager trying to maximize the value of his or her firm’s stock. Both investors and managers need to understand the same set of principles, so the core topics are important to students regardless of what they choose to do after they finish the course.Fundamentals of Financial Management
In planning the book’s structure, we first listed the core topics in finance that are important to virtually everyone. Included were an overview of financial markets, methods used to estimate the cash flows that determine asset values, the time value of money, the determinants of interest rates, the basics of risk analysis, and the basics of bond and stock valuation procedures. We cover these core topics in the first nine chapters. Next, because most students in the course will probably work for a business firm, we want to show them how the core ideas are implemented in practice. Therefore, we go on to discuss cost of capital, capital budgeting, capital structure, dividend policy, working capital management, financial forecasting, and international operations. Nonfinance majors sometimes wonder why they need to learn finance. Fundamentals of Financial Management
As we structured the book, it quickly becomes obvious to everyone why they need to understand time value, risk, markets, and valuation. Virtually all students enrolled in the basic course expect at some point to have money to invest, and they quickly realize that the knowledge gained from Chapters 1 through 9 will help them make better investment decisions. Moreover, students who plan to go into the business world soon realize that their own success requires that their firms be successful, and the topics covered in Chapters 10 through 17 will be helpful here. For example, good capital budgeting decisions require accurate forecasts from people in sales, marketing, production, and human resources, and nonfinancial people need to understand how their actions affect the firm’s profits and future performance.
ORGANIZATION OF THE CHAPTERS:AVALUATION FOCUS
As we discuss in Chapter 1, in an enterprise system such as that of the United States, the primary goal of financial management is to maximize their firms’ values. At the same time, we stress that managers should not do “whatever it takes” to increase the firm’s stock price. Managers have a responsibility to behave ethically, and when striving to maximize value, they must abide by constraints such as not polluting the environment, not engaging in unfair labor practices, not breaking the antitrust laws, and the like. In Chapter 1, we discuss the concept of valuation, explain how it depends on future cash flows and risk, and show why value maximization is good for society in general. This valuation theme runs throughout the text. Stock and bond values are determined in the financial markets, so an understanding of those markets is essential to anyone involved with finance. Fundamentals of Financial Management
Therefore, Chapter 2 covers the major types of financial markets, the rates of return that investors have historically earned on different types of securities, and the risks inherent in these securities. This information is important for anyone working in finance, and it is also important for anyone who has or hopes to own any financial assets. In this chapter, we also highlight how this environment has changed in the aftermath of the financial crisis. Asset values depend in a fundamental way on earnings and cash flows as reported in the accounting statements. Therefore, we review those statements in Chapter 3 and then, in Chapter 4, show how accounting data can be analyzed and used to measure how well a company has operated in the past and how well it is likely to perform in the future. Chapter 5 covers the time value of money (TVM), perhaps the most fundamental concept in finance.Fundamentals of Financial Management
The basic valuation model, which ties together cash flows, risk, and interest rates, is based on TVM concepts, and these concepts are used throughout the remainder of the book. Therefore, students should allocate plenty of time to studying Chapter 5. Chapter 6 deals with interest rates, a key determinant of asset values. We discuss how interest rates are affected by risk, inflation, liquidity, the supply of and demand for capital in the economy, and the actions of the Federal Reserve. The discussion of interest rates leads directly to the topics of bonds in Chapter 7 and stocks in Chapters 8 and 9, where we show how these securities (and all other financial assets) are valued using the basic TVM model. The background material provided in Chapters 1 through 9 is essential to both investors and corporate managers. Fundamentals of Financial Management
These are “Finance” topics, not “Business” or “Corporate Finance” topics as those terms are commonly used. Thus, Chapters 1 through 9 concentrate on the concepts and models used to establish values, whereas Chapters 10 through 17 focus on specific actions managers can take to maximize their firms’ values. Because most business students don’t plan to specialize in finance, they might think the “business finance” chapters are not particularly relevant to them. This is most decidedly not true, and in the later chapters we show that all really important business decisions involve every one of a firm’s departments—marketing
accounting, production, and so on. Thus, while a topic such as capital budgeting can be thought of as a financial issue, marketing people provide inputs on likely unit sales and sales prices, manufacturing people provide inputs on costs, and so on. Moreover, capital budgeting decisions influence the size of the firm, its products, its profits, and its stock price, and those factors affect all of the firm’s employees, from the CEO to the mail room staff.
Fundamentals of Financial Management – INNOVATIONS FOR THE EIGHTH EDITION
A great deal has happened in the financial markets and corporate America since the 7th edition was published. In this 8th edition, we have made several important changes to reflect this dynamic environment. Below, we provide a brief summary of the more significant changes. 1. Today’s students are tomorrow’s business and government leaders, and it is essential that they understand the key principles of finance, the important role that financial markets have on our economy, and the need to behave in an ethical fashion. With those concerns in mind, we changed the organization of Chapter 1 to emphasize the firm’s main goal of creating value for shareholders and expanded the discussion of agency conflicts. We also reiterate that maximizing shareholder value does not mean “increase the stock price at all cost,” and we discuss some recent events where companies have had to pay the price for actions that harmed society. 2. Since the last edition, a number of important events have significantly influenced the financial markets and finance in general. Over the last few years, we have witnessed continued weakness in the economy following the global financial crisis of 2008 and 2009, the European debt crisis, the escalating increase in the U.S. government’s debt, the resulting downgrading of U.S. debt, U.S. budget woes, and sequestration. At the same time, the Federal Reserve’s aggressive policy of quantitative easing has pushed interest rates to the lowest levels in years, which is partially responsible for the dramatic runup in the U.S. stock market between August 2011 and August 2013. Fundamentals of Financial Management
Throughout the 8th edition, we discuss these events and their implications for financial markets and corporate managers, and we use these examples to illustrate the importance of the key concepts covered in Concise for investors, businesses, and even government officials. 3. Instructors and students continually impress upon us the importance of having interesting and relevant real-world examples. Throughout the 8th edition we have added several new examples where recent events help illustrate the key concepts covered in the text. We have also expanded and updated the many tables where we present real-world data, and we have updated the Thomson One examples. Finally, as is always the case, we have also made significant changes to many of the opening vignettes that precede each chapter. 4. Behavioral finance theory continues to have an important influence on the academic literature and it has in many ways reshaped the way that many of us think about financial markets and corporate finance. As a reflection of its growing importance, in Chapter 2 we moved the discussion of behavioral finance and its impact on the efficient markets hypothesis from a separate box into its own section. In addition, we continue to highlight the importance of securitization, the role of derivatives, and the increasing importance of hedge funds, mutual funds, and private equity firms. 5. We updated the tax discussion in Chapter 3 to reflect 2013 tax rates and tax law changes. Impacts of these changes are discussed throughout the text especially in the capital structure and dividend chapters.
Table of Contents – Fundamentals of Financial Management
Part I: INTRODUCTION TO FINANCIAL MANAGEMENT. 1. An Overview of Financial Management. 2. Financial Markets and Institutions. Part II: FUNDAMENTAL CONCEPTS IN FINANCIAL MANAGEMENT. 3. Financial Statements, Cash Flow, and Taxes. 4. Analysis of Financial Statements. Web Appendix 4A: Common Size and Percent Change Analyses. 5. Time Value of Money. Web Appendix 5A: Continuous Compounding and Discounting. Web Appendix 5B: Growing Annuities. Part III: FINANCIAL ASSETS. 6. Interest Rates. 7. Bonds and Their Valuation. Web Appendix 7A: Zero Coupon Bonds. Web Appendix 7B: Bond Risk and Duration. Web Appendix 7C: Bankruptcy and Reorganization. 8. Risk and Rates of Return. Web Appendix 8A: Calculating Beta Coefficients. 9. Stocks and Their Valuation. Appendix 9A: Stock Market Equilibrium. Part IV: INVESTING IN LONG-TERM ASSETS: CAPITAL BUDGETING. 10. The Cost of Capital. Web Appendix 10A: The Cost of New Common Stock and WACC. 11. The Basics of Capital Budgeting. 12. Cash Flow Estimation and Risk Analysis. Appendix 12A: Tax Depreciation. Web Appendix 12B: Refunding Operations. Web Appendix 12C: Using the CAPM to Estimate the Risk-Adjusted Cost of Capital. Web Appendix 12D: Techniques for Measuring Beta Risk. Web Appendix 12E: Comparing Mutually Exclusive Projects with Unequal Lives. Web Appendix 12F: Real Options: Investment Timing, Growth, and Flexibility. Part V: CAPITAL STRUCTURE AND DIVIDEND POLICY. 13. Capital Structure and Leverage. Web Appendix 13A: Degree of Leverage. 14. Distributions to Shareholders: Dividends and Share Repurchases. Web Appendix 14A: An Example: The Residual Dividend Model. Part VI: WORKING CAPITAL MANAGEMENT, FORECASTING, AND MULTINATIONAL FINANCIAL MANAGEMENT. 15. Working Capital Management. Web Appendix 15A: Inventory Management. Web Appendix 15B: Short-Term Loans and Bank Financing. 16. Financial Planning and Forecasting. Web Appendix 16A: Forecasting Financial Requirements When Financial Ratios Change. 17. Multinational Financial Management. Appendix A: Solutions to Self-Test Questions and Problems. Appendix B: Answers to Selected End-of-Chapter Problems. Appendix C: Selected Equations and Tables.
About the Author
Dr. Eugene F. Brigham is Graduate Research Professor Emeritus at the University of Florida, where he has taught since 1971. He received his MBA and Ph.D. from the University of California-Berkeley and his undergraduate degree from the University of North Carolina. Prior to joining the University of Florida, Dr. Brigham held teaching positions at the University of Connecticut, the University of Wisconsin and the University of California-Los Angeles. A former president of the Financial Management Association, he has written many journal articles on the cost of capital, capital structure and other aspects of financial management. He has authored or co-authored 10 textbooks on managerial finance and managerial economics that are used at more than 1,000 universities in the United States and have been translated into 11 languages worldwide. In addition to his academic writing, Dr. Brigham continues to teach, consult and complete research. He has served as a consultant to many corporations and government agencies, including the Federal Reserve Board, the Federal Home Loan Bank Board, the U.S. Office of Telecommunications Policy and the RAND Corp., and he has testified as an expert witness in numerous electric, gas and telephone rate cases at both federal and state levels. Dr. Brigham spends his spare time on the golf course, enjoying time with his family and dogs, and tackling outdoor adventure activities, such as biking through Alaska.
Joel F. Houston is the Eugene F. Brigham Professor of Finance at the University of Florida. He received his M.A. and Ph.D. from the Wharton School at the University of Pennsylvania and his undergraduate degree from Franklin and Marshall College. Prior to his appointment at the University of Florida, Dr. Houston was an economist at the Federal Reserve Bank of Philadelphia. Dr. Houston’s research is primarily in the areas of corporate finance and financial institutions, and his work has been published in top journals including The Journal of Finance, Journal of Financial Economics, Journal of Business, Journal of Financial and Quantitative Analysis, Journal of Accounting Research and Financial Management. Dr. Houston also currently serves as an Associate Editor for the Journal of Money, Credit and Banking; the Journal of Financial Services Research and the Journal of Financial Economic Policy. Since arriving at the University of Florida in 1987, Joel has received 25 teaching awards and has been actively involved in both undergraduate and graduate education. In addition to co-authoring leading textbooks in financial management, Dr. Houston has participated in management education programs for the PURC/World Bank Program, Southern Company, Exelon Corporation and Volume Services America. He enjoys playing golf and spending time with his wife (Sherry), son and daughter-in-law (Chris and Renae) and daughter (Meredith). He is an avid sports fan who follows the Florida Gators and the Pittsburgh Steelers, Pirates and Penguins.
Publisher: Cengage Learning
Publication date: 02/06/2019
Series: MindTap Course List Series
Edition description: New Edition
Sales rank: 482,735
Product dimensions: 8.50(w) x 11.00(h) x 1.10(d)