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Financial Performance

Book Description

Financial Performance presents the foundation concepts underlying the Senior Executive Programmes the Authors have taught together and separately over the last 15 years in Europe, Asia and North America. These programmes include The Oxford Advanced Management Programme The Oxford Senior Executive Finance Programme The INSEAD Advanced Management Programme The IMI, Geneva, Advanced Management Programme The Harvard Advanced Management Programme The Oxford International Executive Programme, Singapore The IMI International Finance Programme, Singapore

The book is intended as a reference manual as well as a textbook and will be of value to anyone with an interest in financial performance - particularly senior executives.

The developments in modern finance over the last two decades have considerable implications for the way senior executives think about the finance discipline. It is no longer enough to have a rudimentary knowledge of basic finance and a heavy reliance on financial specialists.

CEOs of course need excellent financial professionals - however they need to go beyond this and provide strategic leadership. This requires a conceptual framework for dealing with financial matters. This book provides a description of the underlying ideas and will be of value to anyone with an interest in financial performance - particularly senior executives.

This book revolves around the concept of value and it is organised into two parts. Part I Performance Measurement Consists of three chapters, all of which focus on the real and fairly complex set of financial statements of DaimlerChrysler AG.

The first two chapters provide a detailed guided tour of the financial statements which deconstruct the complexity and then reconstruct the financials to provide a clearer base for analysis. These chapters have been arranged to deal with each line item of financial statements which have been highlighted in such a way to allow the reader to treat the materials as a reference as well as a sequential read.

Chapter three presents a framework for evaluating financial health and introduces a cash flow based model for understanding the short and medium term constraints on a firm's growth. This exposition revolves around the concept of sustainable growth.

Part 2 Valuation In the second part of the book chapter 4 introduces the cost of capital concept followed by chapter 5 which provides a general source of reference for valuation and a variety of difference applications.Chapter 6 concludes the book with a review of concept of shareholder value from a European perspective. Rory Knight MA(Oxon), MCom, PhD, CA Dean (Emeritus), Templeton College, University of Oxford

For the last five years Rory has been Dean of Templeton College, the University of Oxford's business college. During this time he led the Oxford Advanced Management Programme and he created the Oxford Senior Executive Finance Programme. He has considerable experience in business and management development. He is actively involved in briefing the senior executives of leading companies on issues in Finance and Strategy.

Prior to coming to Oxford Dr Knight was the deputy director of a foundation within the Swiss National Bank (SNB) and previously a Professor in Finance at IMI, Geneva & IMD, Lausanne. Marc Bertoneche MA, MBA, DBA, Phd Visiting Professor, Harvard Business School

Marc is a Professor in Business Administration at the University of Bordeaux and has been on the faculty at INSEAD, the European Institute of Business Administration in Fontainebleau France for more than twenty years. His areas of interest include corporate and financial strategy, mergers and acquisitions, venture capital, financial markets, corporate ownership and governance, risk management and international finance. He is currently visiting professor at the Harvard Business School.

Table of Contents

  1. Cover image
  2. Title page
  3. Table of Contents
  4. Copyright page
  5. Introduction
    1. Part 1 Performance Measurement
    2. Part 2 Valuation
  6. Part 1: Performance Measurement
    1. 1: Review of financial statements 1: The balance sheet
      1. 1.1 Introduction
      2. 1.2 Deconstructing the balance sheet
      3. 1.3 Assets
      4. 1.4 Total liabilities and stockholders’ equity
      5. 1.5 Reconstructing the balance sheet for further analysis
      6. 1.6 What does the balance sheet reveal?
      7. 1.7 What is missing from the balance sheet?
    2. 2: Review of financial statements 2: The income statement and the statement of cash flows
      1. 2.1 Introduction to flow statements
      2. 2.2 The income statement
      3. 2.3 Earnings per share (eps)
      4. 2.4 Rearranging the income statement
      5. 2.5 What does the income statement reveal?
      6. 2.6 The cash flow statement
      7. 2.7 Rearranging the cash flow statement
      8. 2.8 Summary of financial statement review
    3. 3: Assessing financial health
      1. 3.1 Introduction
      2. 3.2 Financial ratios
      3. 3.3 How profitable is DaimlerChrysler? – profitability ratios
      4. 3.4 How effective is DaimlerChrysler? – efficiency ratios
      5. 3.5 How is DaimlerChrysler financed? – financing ratios
      6. 3.6 How liquid is DaimlerChrysler? – liquidity ratios
      7. 3.7 The drivers of ROE
      8. 3.8 Constraints on long-term growth – sustainability
      9. 3.9 Understanding the relationships among profitability, financial policy and growth
      10. 3.10 Stock market measures
      11. Appendix 3A Summary of key financial ratios
      12. Appendix 3B The relationship between ROE and ROA
  7. Part 2: Valuation
    1. 4: The cost of capital: concept and measurement
      1. 4.1 Thinking about risk and return: a quick overview of capital asset pricing model (CAPM)
      2. 4.2 Calculating the cost of capital
      3. 4.3 Single versus multiple cost of capital
      4. 4.4 The cost of capital in an international framework
      5. 4.5 The use of cost of capital in measuring value creation: the concept of economic value added (EVA)
      6. 4.6 The use of cost of capital and EVA in understanding financial policies: the example of share repurchases
    2. 5: Valuation: principles and methods
      1. 5.1 The basic discounted cash flow (DCF) approach: a simple example
      2. 5.2 Investment decision techniques
      3. 5.3 The parameters for valuation in the DCF approach
      4. 5.4 Business valuation: a review of different methods
      5. 5.5 Discounted cash flow methods and economic value added (EVA)
      6. 5.6 Value creation and value drivers
    3. 6: Shareholder value: a European perspective
      1. 6.1 The main drivers of change in Europe towards shareholder value
      2. 6.2 The remaining barriers to shareholder value focus in Europe
      3. 6.3 Mergers and acquisitions (M&A) in Europe
      4. 6.4 Spin-offs, demergers and carve-outs in Europe
      5. 6.5 Share repurchase in Europe19
      6. 6.6 Shareholder value in Europe: some concluding comments
  8. Index