Corporate finance covers any decisions made by firms that have financial implications. Thus, there is a corporate financial aspect to almost every action taken by a firm, no matter what functional area claims responsibility for it.
There is only one way to learn corporate finance well, and that is by analyzing real companies with real problems. Consequently, we will use extended applications with two companies - the Home Depot and Boeing - to illustrate principles all through this book. We will also use other companies selectively through the book to illustrate specific problems. The applications developed here are not mere addendum to models, but are an integral part of explaining and developing them.
In keeping with the encompassing definition of corporate finance given above, this book is designed for a wide audience. Obviously, it will be most useful for those who plan to make a living in corporate finance, whether at corporations, investment banks or management consulting firms. At the same time, those in other areas of business, be it marketing, production or organizational behavior, should find the tools and principles developed here of use in their chosen fields. Finally, there are several parts of this book that would be useful to small business owners and entrepreneurs, looking for ways to improve their understanding of the financial aspects of their businesses.
There is a wide range of books on corporate finance. First, there are the 'nuts and bolts' books, essentially focusing on working through problems and exercises. They eschew raising provocative questions, provide closure on complicated questions and provide the reader with a sense of being in control of the topic. Next, there are the 'big picture' books that provide readers with the state of the art in corporate finance and a tantalizing vision of things to come. Finally, there are the "practitioner" books that focus on corporate financial tools and techniques, and pay little attention to the underlying theory. This book is my attempt to find common ground between theory, applications and examples, and to provide a guide for those who not only want to practice corporate finance, but to understand it well enough to develop their own models as they move along.
I believe that this books primary strength is its focus on applying complex theory to real firms, while minimizing the compromises that inevitably have to be made in the process. I have also tried to maintain a balance between immersing readers in the details of corporate financial analysis the tools and techniques that are used on a day to day basis and the big picture of corporate finance that allows them to see how these tools and techniques fit together and what the common principles are that apply across all of them.
The genesis for this book lay in the class room, and it has been shaped by the reactions and responses of students to examples that I have used in my lectures. The ideas were also tested out on instructor focus groups to examine whether they worked for others, and to fill in gaps in the material that were viewed as important. In order to ensure the accuracy of the examples, problems and extended applications that run through this book, two technical proofreaders proofed the manuscript for errors.
It is my hope that the extended examples in this book will induce readers to try out the theory on other companies. By doing so, they will not only understand the limitations of the theory better, but also learn how to adapt it for use in the real world. To make this process easier, there is a accompanying diskette containing spreadsheets that were used to generate the applications in this book. Readers should be able to use these spreadsheets to analyze a project, examine the optimal debt ratio for a firm, estimate how much cash it has available to pay out to stockholders and value the firm.