· There is no book in the market that covers the range of topics that Applied Corporate Finance Models does, and the way that it does so for the practitioner.
· This unique book brings together the latest management thinking and applied techniques in four essential areas of applied corporate finance – under one integrated Corporate Financial Planning framework for senior executives.
· Most competitive books are more geared to theory than practice, and are not written by practitioners for senior corporate management.
If you need to know the answer to the question, "what are the latest corporate finance concepts and models currently being used by top corporations, to improve their business planning and execution, achieve superior returns, and manage business risks optimally?", then this book is for you.
New developments in applied corporate financial techniques are helping many companies better understand and manage business risks, improve execution effectiveness and overall financial performance. This book provides a complete picture of state-of-the-art applied corporate finance, by presenting concepts and models in an integrated value maximisation framework. Thie book reveals the latest techniques in:
Optimizing the Corporate Finance Function
The External Business Environment and Corporate Financial Strategy
The Strategic Logic of High Growth
2. Shareholder Value Maximization
Valuation Models: Public Company
Valuation Models: Closely held Company
Corporate Performance Measurement: Economic Value Added (EVA)
3. Financial Policy
Optimal Capital Budgeting with real Options
Mergers and Acquisitions
Asset-Liability Management: Optimizing the Balance Sheet
4. Risk Management
Identifying and Estimating Risk Exposure
Off-Balance Sheet (OBS) Risks
Operational Risk Management
Enterprise Wide Risk Management (EWRM)
Risk Hedging Strategies
5. Financial Reporting, Planning and Control
Financial Reporting: GAAP Convergence
Business and Financial Planning
Financial Control and Audit
Optimize amid Changing Operating Conditions
6. Corporate Performance Management: The Balancing act?
The Execution Problem
The Balanced Scorecard
Real-time Financial Systems: Corporate Performance Management (CPM)
Integrated Financial Management
Appendix: Applied Financial Optimization Modelling
Value Maximisation: Analytical Techniques
Company Size, Asset Utilization and Financial Leverage
Brief Synopsis of each Chapter:
Chapter 1: Introduction: Optimizing the Corporate Finance Function an integrated frameworkEach business is unique in terms of product, market, size, industry, management, culture, and financial strength. Companies need to tailor any generic model to its own unique needs and circumstances. Corporate financial management includes shareholder value maximization, risk management, financial planning, and performance assessment. Often these functions are viewed independently. For example, risk management is often performed by the treasury department on an ad hoc basis, and without an integrated planning and optimisation framework. The corporate finance function supports shareholder wealth creation by supporting corporate growth objectives with a disciplined financial foundation that is dynamically optimised with superior insights. The Modified Balanced Scorecard provides such a framework, which integrates economic value creation, enterprise-wide-risk management, and financial planning in an applied model. We discuss quantitative methods for optimisation of the corporate finance function, and assess qualitative aspects of real-world corporate finance that supports optimal decision-making, from a senior management perspective.
Chapter 2: Shareholder Value Maximization
Shareholder value is maximized when a company maximizes its growth opportunities by making superior financing and investing decisions, while optimally managing the operational risks of the business. In this chapter, we discuss the major shareholder valuation methods, and analytical techniques for value maximization. This includes minimization of earnings and cash flow volatility. We focus on the economic valuation aspects or EVA-type valuation techniques instead of accounting-based valuations, and cover both publicly listed as well as privately held companies.
Chapter 3: Financial Policy
Corporations usually have some guidelines they use for financial management, such as dividend payout amounts or payout ratios, debt-to-equity ratios, accounts receivable-to-revenue ratios and so on. As competition gets harder, simple rules-of-thumb or directionally right benchmarks are increasingly sub-optimal for corporate management purposes. We discuss and demonstrate how advanced quantitative techniques can be used to reach accurate optimising financial policy decisions, and how they can be modified over-time for dynamic optimisation. Beyond the analytical techniques, however, optimal financial policy-making involves superior insights into financial market dynamics, so that anticipated losses can be averted with appropriate risk management initiatives, and new market opportunities capitalized upon.
Chapter 4: Risk Management
Applied financial optimisation is a quantitative discipline, and nowhere is that more obvious than in the area of financial planning. In this chapter, we discuss how a financial planning model can be optimised using stochastic programming, incorporating uncertainty into the model, and how Monte-Carlo simulations can be performed on the financial planning model. In the real world, this can be done real-time with financial systems such as Hyperion, PeopleSoft etc. that provide real-time financial statements, and with softwares such as Crystal Ball and Risk Optimizer that can be used to estimate optimal levels of decision-variables.
Chapter 5: Financial Reporting, Planning and Control
This is a difficult topic, since risk, in general, is poorly understood and poorly estimated. Only some leading companies have integrated risk management systems in place that allow them to dynamically evaluate various financial risks such as exchange rate risk, interest rate risk, commodity price risk, and operational risks. We review the state-of-the-art risk estimation model: Value-at-Risk (VaR), and the latest integrated risk management model: Enterprise Wide Risk Management (EWRM). We show how optimal risk exposures can be derived, and how that is, in turn, a part of the broader corporate performance assessment model: the modified balanced scorecard.
Chapter 6: Corporate Performance Management: the Balancing act
In this chapter, a detailed financial planning model is presented that links the Balance Sheet, Income Statement, and Cash Flow Statement. The model estimates EVA and enterprise valuation, and VaR estimation of risk exposures, given certain assumptions and data-points. The financial model is then used to optimise financial policy. It also identifies areas where expenses can be streamlined, and financial controls implemented. We discuss the need for real-time financial systems with capabilities to disaggregate financial information. In light of the recent focus on financial data-integrity, we discuss how internal and external audits help that process.
Appendix: Optimizing Corporate Performance
The Balanced Scorecard is a powerful method to assess corporate performance with both financial and non-financial metrics in the scorecard. We discuss how corporate performance can be optimised with a modified balanced scorecard. The modifications we incorporate into the traditional balanced scorecard concept are the EWRM risk management model, the EVA valuation model, SAVANT tax planning model, the risk-adjusted value maximisation model, and the linkage among the four areas of performance assessment: financial perspective, customer perspective, learning and growth perspective, and internal operations and process perspective.