Finance and Accounting for Nonfinancial Managers: All the Basics You Need to Know / Edition 6

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Packed with step-by-step examples and illustrative case studies and updated to reflect the latest changes in policy and the financial crisis of 2008-2009, Finance and Accounting for Nonfinancial Managers is a nuts-and-bolts guide for managers, entrepreneurs, seasoned executives, teachers, and students alike. Featuring new chapters on corporate governance, mergers and acquisitions, and international finance, as well as updated interactive templates, Power Point slides to accompany each chapter, and an instructor's guide on the Web, Finance and Accounting for Nonfinancial Managers covers all major aspects of financial management, including:

Reading a Balance Sheet

Mastering the Accounting Cycle

Making Long-term Investment Decisions

Conducting Breakeven Analysis for Profit Planning

Calculating Cost of Capital

Evaluating Closely Held Companies and much more.

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Product Details

  • ISBN-13: 9780465018499
  • Publisher: Basic Books
  • Publication date: 6/22/2010
  • Edition description: Sixth Edition
  • Edition number: 6
  • Pages: 320
  • Sales rank: 420,589
  • Product dimensions: 6.10 (w) x 9.20 (h) x 0.90 (d)

Meet the Author

William G. Droms is Professor of Finance at the McDonough School of Business, Georgetown University, and Chairman of Droms Strauss Advisors, Inc. He lives in Annapolis, Maryland.

Jay Wright is the CEO of the Mobilepro Corporation and an adjunct professor at the McDonough School of Business, Georgetown University. He lives in Bethesda, Maryland.

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Table of Contents

Preface xiii

I Introduction

1 Contemporary Financial Management 3

(R)evolution of the Finance Function 3

Goals of Financial Management 6

Organization and Structure of the Book 7

Conclusion 9

Summary 9

2 The Tax Environment 12

Organizational Form and Taxes 12

Corporate Income Taxes 14

Personal Income Taxes 19

Subchapter S Corporations 21

Summary 22

II Financial Accounting Fundamentals

3 Introduction to Financial Statements 27

Objectives of Financial Accounting 27

The Auditor's Opinion 30

The Balance Sheet 33

Book Value of Securities 39

The Income Statement 41

Supplemental "Pro Forma" or "Operating" Earnings 44

Accumulated and Retained Earnings 44

Statement of Cash Flows 45

Sarbanes-Oxley and Financial Statements 47

Summary 47

4 Accounting-A Financial Information System 50

The Accounting Process 50

The Accrual Concept 50

Double-Entry Accounting 53

The Accounting Cycle 60

Summary 66

5 Special Topics in Accounting 67

Changes in the Equity Account 67

Depreciation Accounting 69

Inventory Accounting 74

Accounting for Leases 79

Intercorporate Investments 80

Summary 81

III Financial Analysis and Control

6 Financial Statement Analysis 87

Objectives of Financial Statement Analysis 87

Ratio Analysis 88

Common-Size Statements 95

Sequence of Analysis 96

Case Study: Technosystems, Inc. 97

Financial Analysis, Financial Fraud, and Financial Stress 103

Summary 104

7 Financial Forecasting and Cash Budgeting 107

Objectives of Financial Forecasting 107

Short-Term Forecasts and Cash Budgeting 107

Financial Forecast for the Cutler Toy Company 108

Long-Term Financial Planning 121

Summary 124

8 Breakeven Analysis for Profit Planning 126

Assumptions of Breakeven Analysis 126

Breakeven Applications 127

The Breakeven Technique 128

Breakeven Charts 131

Nonlinear Breakeven Analysis 135

Summary 136

IV Working Capital Decisions

9 Working Capital Policy 141

Importance of Working Capital Policy 141

Short-Term Versus Long-Term Financing 142

Relative Magnitude of Working Capital Investment 147

Inventory Control Policy 149

Credit Policy 150

Accounts Payable Payment Policy 151

Summary 152

10 Working Capital Management 154

Management of Cash and Marketable Securities 154

Accounts Receivable Management 158

Inventory Management 161

Sources of Short-Term Financing 164

Summary 169

Appendix 10.1 Mathematical Derivation of Economic Order Quantity 170

V Long-Term Investment Decisions

11 Mathematics of Compound Interest 175

Compound Interest 175

Present Value 180

Present Value of an Annuity 181

Compound Value of an Annuity 183

Application to Personal Decision Making 186

Summary 189

12 Capital Budgeting 191

Payback 191

Net Present Value 192

Internal Rate of Return 194

Profitability Index 197

Selection of Method 198

Dealing with Uncertainty 200

Case Study: Droppitt Parcel Company 201

Summary 203

13 Cost of Capital 205

Cost of Capital Defined 205

Marginal Cost and Capital Budgeting 207

Calculating the Average Cost of Capital 208

The Capital Asset Pricing Model 212

Capital Structure Management 213

Summary 215

VI Long-Term Financing Decisions

14 Valuation of Financial Assets 221

Capitalization-of-Income Method 221

Selecting Appropriate Capitalization Rates 222

Bond Valuation 224

Preferred Stock Valuation 227

Common Stock Valuation 229

Summary 234

15 Valuing Closely Held Businesses 236

Valuation Principles 236

Revenue Ruling 59-60 236

Case Analysis: Valuing Home Medical Care, Inc. 239

Summary 247

16 Sources and Forms of Long-Term Financing 250

The Money and Capital Markets 250

Intermediate- and Long-Term Debt 251

Lease Financing 254

Preferred Stock 257

Common Stock 258

Dividend Policy 260

Summary 264

VII Special Topics in Finance

17 Governance and Risk Management 269

Basics of Corporate Governance 269

Directors' Fiduciary Duties 270

Daily Governance of the Corporation 271

Risk Management 272

Summary 274

18 International Finance 276

Currencies 276

Futures, Options, and Swaps 279

Money Markets 281

Capital Markets 282

Summary 283

19 Mergers and Acquisitions 284

A Brief History of Mergers and Acquisitions 284

How Companies Can Work Together 285

How and Why to Do an Acquisition 287

The Politics and Economics of Acquisitions 289

LBOs, Hostile Takeovers, and Reverse M & A 290

Summary 293

Index 295

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