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Corporate Finance

(Brent) #1

  • List of Exhibits

  • Preface

  • Acknowledgements



      1. Introduction Section One BUILDING BLOCKS





      1. Time Value of Money





      1. Risk and Return





      1. Estimation of Cost of Capital





      1. Financial Statements and Firm Value





      1. A Case Study: Financial Statements and Industry Structure





      1. A Case Study: Financial Performance of Pharmaceutical Companies





      1. Overview of Capital Budgeting Section Two CAPITAL INVESTMENTS





      1. Free Cash Flow Valuation







    1. A Case Study: Detergents India Limited





    1. Risk Analysis in Capital Investments





    1. A Real Option’s Perspective of Capital Budgeting





    1. A Follow-up Note on Capital Budgeting





    1. Estimation of Working Capital Section Three MANAGING CURRENT ASSETS





    1. A Case Study: Bharti Dredging and Construction Limited





    1. Cash Management





    1. Receivables Management





    1. A Case Study: SM Electric (India) Limited





    1. Optimal Capital Structure Section Four THE FINANCING DECISION





    1. An Overview of Financing Choices





    1. Initial Public Offerings





    1. Bank Loans





    1. A Case Study: Bermuda Airways





    1. Debt Markets





    1. A Follow-up Note on Financing





    1. A Case Study: Financing NTPC





    1. Special Topic: Project Financing





    1. A Case Study: HPL Cogeneration Limited





    1. The Leasing Decision





    1. The Dividend Debate Section Five DIVIDEND POLICY





    1. A Case Study: Back to SM Electric (India) Limited





    1. Growth and Value STRATEGY, AND SHAREHOLDER VALUE





    1. Growth via Mergers and Acquisitions





    1. A Case Study: The Merger of ICICI Bank and Bank of Madura





    1. Leveraged Recaps and Buyouts





    1. EVA and Divisional Performance Measurement



  • Index

  • About the Author

    • Introduction 

    • 1.1 Overview of financial decisions List of Exhibits

    • 1.2 The balanced scorecard

    • 1.3 Control of publicly traded companies in East Asia in

    • 1.4 The value of good governance around the world

    • 1.5 Corporate governance rankings

    • 1.6 P/BV ratios of some well-known companies

    • 1.7 Interplay between the firm’s macroeconomic environment and the internal

    • 2.1a Future value interest factor ‘Capital Market’

    • 2.1b Future value interest factor

    • 2.2 Present value interest factor

    • 2.3 Future value interest factor of an annuity

    • 2.4 Present value interest factor of an annuity

    • 2.5 Loan amortization schedule

    • 3.1 Mutual funds in India

    • 3.3 Returns from some Sensex stocks between 60 and 3.2 Closing prices of Sensex stocks inside back cover

    • 3.4 Expected returns of two investments

    • 3.5 Mean and standard deviation of returns

    • 3.6 Annualized real returns on major asset categories worldwide, 1990–2000

    • 3.7 Risk and return of Sensex

    • 3.8 Portfolio return and risk

    • 3.9 Effect of diversification on risk



  • 3.10 Characteristics of emerging and developed markets

  • 3.11 Global correlations

  • 3.12 Efficient frontier

  • 3.13 Capital market line

  • 3.14 Beta estimates for some Sensex stocks

  • 3.15 Risk premia for select countries

  • 3.16 Monthly returns—Mexico

    • 4.1 Beta estimates with different market proxies

    • 4.2 Beta estimates for different return intervals

    • 4.3 Mean and standard deviation of return on indices

    • 4.4 Returns around the world

    • 4.5 Risk premia for select Asian countries

    • 4.6 Equity premia—US data, 1802–1998

    • 4.7 Prevailing yields

    • 4.8 WACC for Infosys Ltd

    • 4.9 Industry betas



  • 4.10 Approach/weighting scheme in cost of capital estimation

  • 4.11 Cost of equity estimation procedure

  • 4.12 Survey responses to the question: Does your firm estimate the cost of equity capital?

  • 5.1(a) Financial statements of Hindustan Lever Ltd If yes, how?

  • 5.1(b) Income statement of HLL

    • 5.2 Common size financial statements

    • 5.3 Key ratios for automotive companies (in 1996)

    • 5.4 Financial data for Vishy Corp.

    • 5.5 Statement of cash flows



  • 5.6(a) Cash flow statement of Company-1

  • 5.6(b) Cash flow statement of Company-2

  • 5.6(c) Cash flow statement of Company-3

    • 5.7 Drivers of cash flow

    • 6.1 Balance sheet and financial data

    • 7.1 Global pharmaceutical market

    • 7.2 Business mix of Glaxo

    • 7.3 Pharmaceutical firms—balance sheet

    • 7.4 Pharmaceutical firms—income statement



  • 7.5(a) Pharmaceutical firms—common size balance sheet

  • 7.5(b) Pharmaceutical firms—common size income statement

    • 7.6 Pharmaceutical firms—statement of cash flows

    • 7.7 Select financial ratios and data

    • 7.8 Stock price histories of pharmaceutical companies

    • 7.9 EBITDA margins

    • 8.1 Project cost

    • 8.2 NPV profile

    • 8.3 Capital budgeting practices in select countries

    • 8.4 Survey responses to the question, ‘How frequently does your

    • 9.1 All passengers carried since 1992 in the domestic sector or acquisitions to pursue?’

    • 9.2 Forecast for 15 years

    • 9.3 Forecast of free cash flow

      • 9.4 Depreciation rates as per Schedule XIV

      • 9.5 Rates at which depreciation is admissible

      • 9.6 NPV vs discount rate

      • 9.7 Implementing the capital-rationing decision—who makes allocation and selection

      • 9.8 Why internal capital rationing?

      • 9.9 Flexibility of the investment ceiling



    • 10.1 Executive summary of financial performance of DIL

    • 10.2 Market share of consumer products

    • 10.3 Snapshot of the detergent industry in

    • 10.4 Estimation of free cash flows

    • 11.1 Sensitivity of NPV

    • 11.2 Sensitivity of NPV to the changes in selling price

    • 11.3 Sensitivity of NPV to cash flows

    • 11.4 Accounting BEP as percentage of the installed capacity

    • 11.5 Break-even chart

    • 11.6 Decision tree

    • 11.7 Modified decision trees

    • 11.8 Uncertainty profile

    • 11.9 Risk-adjustment procedure in Fortune 1000 companies



  • 11.10 Country ratings and default spread

  • 12.1(a) Call option premium relative to intrinsic value

  • 12.1(b) The impact of factors determining option value

    • 12.2 Common real options

    • 12.3 The analogy between capital projects and a call option

    • 12.4 Decision tree for an oil exploration project

    • 13.1 Dynamic project evaluations

    • 13.2 Value maximizing capital allocation system

    • 14.1 Operating cycle

    • 14.2 Working capital investment and its productivity in some companies

    • 14.3 Estimation of working capital at Spar (I) Limited (1998–99 and 1997–98)

    • 15.1 Financial details of Bharti Dredging and Construction Limited

    • 16.1 Corporate cash holdings in

    • 16.2 Cash management process

    • 16.3 Cash inflow timeline diagram

    • 16.4 Cash outflow timeline diagram

    • 16.5 Deposit and disbursement float

    • 16.6 Lock box system

    • 16.7 Cash budget for Dalmia Cement (Bharat) Limited

    • 16.8 The Euromoney cash management poll (overall ranking)

    • 17.1 Average collection period for Fort Aguada Beach Resort

    • 17.2 Aging schedule

    • 17.3 Classifications of customers

      • List of Exhibits 



    • 17.4 Risk classification of the customers of Fort Aguada Beach Resort

    • 17.5 Business Week’s global 1000 (1996): Survey results

    • 18.1 Financial details of SM Electric (India) Limited

    • 18.2 Trends in net working capital and current assets

    • 18.3 Aging schedule

    • 18.4 Average collection period (in days)

    • 18.5 Cash flows

    • 18.6 The economics of factoring

    • 18.7 Cost benefit analysis (assuming a normal ACP of 30 days)

    • 19.1 Debt ratios of some top companies

    • 19.2 Return on equity at various debt levels

    • 19.3 Effect of leverage on firm value

    • 19.4 Modigliani and Miller proposition II

    • 19.5 The graph of cost of capital vs debt ratio

    • 19.6 Borrowing increases value of the firm/funds available to investors

    • 19.7 Effect of personal taxes on firm value

    • 19.8 Tax treatment of interest, dividends and retained earnings around the world

    • 19.9 Firm value with bankruptcy cost



  • 19.10 Survey responses to the question: ‘What factors affect how you choose

  • 19.11 Survey responses to the question: ‘What other factors affect your firm’s debt policy?’ the appropriate amount of debt for your firm?’

  • 19.12 Survey responses to the question: ‘Has your firm seriously considered

  • 19.13 Leverage in the G-7 countries about issuing common stock?

    • 20.1 Factors affecting financial innovation

    • 20.2 Lead underwriters by volume, deals in

    • 20.3 Capital raised through debentures

    • 20.4 The value of convertible at various stock prices

    • 21.1 Resource mobilization during 1997–2000

    • 21.2 Sensex movements during 1997–2002

    • 21.3 Characteristics of emerging and developed markets

    • 21.4 IPO activity in the US

    • 21.5 Internet IPOs

    • 21.6 Costs of going public (in percentage, of equity IPOs 1990–94)

    • 21.7 Top underwriters in India and the US

    • 21.8 Listing statistics of the Bombay Stock Exchange

    • 21.9 Performance of recent bank IPOs



  • 21.10 Union Bank valuation

  • 21.11 Average initial returns around the world

  • 21.12 Performance of book building in India

  • 21.13 Returns on IPOs in the US during the five years after issuing, 1990–98

  • 21.14 Stock price performance of Union Bank

    • 22.1 Sources of funds for corporate sector

    • 22.2 Financial ratios as perceived by loan officers

    • 22.3 Loan covenants

    • 22.4 Stock price response to announcements of corporate borrowing



  • 22.A1 Format of a commercial paper

  • 22.A2 Recent CP issues

    • 24.1 Participants in the debt market

    • 24.2 Growth of the US debt market

    • 24.3 The Asian debt market

    • 24.4 Resource mobilized from debt markets

    • 24.5 Market composition (as on September 30, 2002)

    • 24.6 Cash flows associated with a bond

    • 24.7 The relationship between price and yield

    • 24.8 Graphical representation of the price–yield relationship

    • 24.9 Rating agencies in Asia

    • 25.1 Standard & Poor’s rating process

    • 25.2 The credit rating process

    • 25.3 Credit rating symbols

    • 25.4 CRISIL median ratios for 1994–96

    • 25.5 Standard & Poor’s rating of LT debt (1994–96)

    • 25.6 Proforma financial forecasts and bond rating for alternate capital structures

    • 25.7 Sequence of raising capital

    • 25.8 Resource mobilization by the corporate sector

    • 25.9 Maturity profile



  • 25.10 Cash flow projection

  • 25.11 Priority structure of corporate liabilities

  • 25.12 Exchange rates, inflation rates, and interest rates

  • 25.13 Deviations in interest rates

  • 25.14 Differences in real interest rates

  • 25.15 Deviations from PPP

  • 25.16 Deviations from IRP

  • 25.17 Forward parity

  • 25Q.1 Income statement

  • 25Q.2 Balance sheet

  • 25Q.3 Internal content of working capital

    • 26.1 Capacity addition plans of NTPC

    • 26.2 NTPC’s past financial highlights

    • 27.1 Project structure

    • 27.2 Risk sharing among project participants

    • 27.3 Mechanism to cover risk

    • 27.4 Build–operate–transfer model

      • List of Exhibits 



    • 28.1 Financial performance of Larsen & Toubro

    • 28.2 Projects handled by Cogeneration and Captive Power Projects Group

    • 28.3 Comparative data on project finance and general purpose loans

    • 28.4 HPLCL project

    • 28.5 Combined cycle power plants in India

    • 28.6 Pre-completion risks

    • 28.7 Post-completion risks

    • 28.8 General risks

    • 28.9 Regulatory approvals and consents



  • 28.10 Sources and uses of funds

  • 28.11(a) Debt service

  • 28.11(b) Capital market and comparable company data

    • 29.1 Lease vs buy

    • 29.2 Incremental cash flows

    • 29.3 Depreciation tax shield

    • 29.4 Incremental cash flows

    • 29.5 Method of lease analysis in the responding firms that consider

    • 29.6 Discount rate used in computing NAL leasing a financing decision

    • 29.7 Lease analysis of projects rejected at the capital budgeting stage

    • 30.1 Dividend payout ratio for 1991–95

    • 30.2 Stable dividend policy practiced by sample companies

    • 30.3 Survey results–America

    • 30.4 The impact of dividend tax on dividend policy

    • 30.5 Dividend policy around the world

    • 30.6 Stock repurchases by Dutch auction, tender offer and open market methods

    • 30.7 Pros and cons of various share repurchase methods

    • 30.8 Impact of a stock repurchase on securities prices

    • 30.9 Who gains in a buy-back?



  • 30.10 Managerial motives for stock dividends

    • 31.1 Financial details of SM Electric (India) Limited

    • 31.2 Forecast of free cash flows

    • 31.3 Forecasted profitability with dividends (@ 10 percent)

    • 31.4 Projected balance sheet with dividends

    • 31.5 Forecasted balance sheet after a repurchase

    • 31.6 Interest rates on bank fixed deposits

    • 31.7 Comparison of alternatives

    • 32.1 Sustainable growth rates for various combinations of P, A, T, and L

    • 32.2 Market price of Company A

    • 32.3 Market price of Company B

    • 32.4 Value creation model

    • 32.5 M/B ratio of some well-known companies

    • 32.6 Total shareholder return of some big business groups

    • 32.7 TSR of some MNC stocks



  • 33.1 Recent acquisitions

  • 33.2 Merger gains

  • 33.3 Value-creation in acquisitions

  • 33.4 Free cash flow forecast for Clariant

  • 33.5 Pre-merger financial statements

  • 33.6 Forecast of cash flows

  • 33.7 Recent brand acquisitions

  • 33.8 Returns to target firm shareholders

  • 33.9 Returns to acquiring firm shareholders

  • 34.1 Financials for the half-year ended September

  • 34.2 Profit and loss account for the year ended March 31,

  • 34.3 Balance sheet as on March 31,

  • 34.4 Share price movements of ICICI Bank and Bank of Madura

  • 35.1 Public company vs LBO association

  • 36.1 Top companies on the basis of total shareholder return

  • 36.2 Top value creators in Europe

  • 36.3 The balanced scorecard

  • 36.4 Wal-Mart stores invested capital

  • 36.5 Top companies in the US, the UK, and Pan-Asia, on the basis of

  • 36.6 Correlation between percentage change in economic value added and market value added

    • List of Exhibits  shareholder value (1994–95)



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