Contents

Front Matter

PART I: MANAGEMENT

Chapter 1: Financial Management and the Firm

  • Introduction to Management
  • Develop the Firm’s Mission Statement
  • Choose the Firm’s Strategic Goals and Tactical Objectives
  • Identify the Firm’s Strengths, Weaknesses, Opportunities, and Threats
  • Develop and Evaluate the Firm’s Strategy
  • Implement the Firm’s Strategy
  • Evaluate the Firm’s Performance
  • The Firm Financial Management Process
  • Trade-offs between Financial Goals and Objectives
  • Summary and Conclusions
  • Questions

Chapter 2: Alternative Forms of Business Organizations

  • Introduction
  • Sole Proprietorship
  • Partnerships
  • Corporations
  • Limited Liability Company
  • Cooperative
  • Trusts
  • Farm Business Organization Types in US Agriculture
  • Summary and Conclusions
  • Questions

Chapter 3: The Federal Tax System

  • Introduction
  • Individual Taxes
  • Total Marginal Tax Rates
  • Bracket Creep
  • Interest and Dividend Income
  • Interest Paid by Individuals
  • Capital Gains and Losses
  • Tax Credits
  • Business Taxation
  • Depreciation
  • Bonus or Additional Depreciation
  • Interest and Dividends Received
  • Interest and Dividends Paid
  • Summary and Conclusions
  • Questions

PART II: STRENGTHS, WEAKNESSES, OPPORTUNITIES, AND THREATS

Chapter 4: Financial Statements

  • Introduction
  • Financial Statements
  • The Balance Sheet
  • Checkbooks and Sources and Uses of Funds (SAUF) Statement
  • Statement of Cash Flow (SCF)
  • Cash Income Statements
  • Accrual Income Statement (AIS)
  • More Complicated Financial Statements
  • Over-identified Variables
  • Constructing Consistent Coordinated Financial Statements (CFS): A Case Study
  • Populating FFF’s Cash Income Statements to Conform to HQN’s Income Templates
  • Summary and Conclusions
  • Questions

Chapter 5: Financial Ratios

  • Introduction
  • Financial Ratios
  • Solvency Ratios
  • Profitability Ratios
  • Efficiency Ratios
  • Liquidity Ratios
  • Leverage Ratios
  • Other Sets of Financial Ratios
  • The DuPont Equation
  • Comparing Firm Financial Ratios with Industry Standards
  • Using Financial Ratios to Determine the Firm’s Financial Strengths and Weaknesses
  • Limitations of Ratios
  • Strengths and Weaknesses Summary
  • Summary and Conclusions
  • Questions

Chapter 6: System Analysis

  • Introduction
  • Coordinated Financial Statements as a System
  • SPELL Ratios and What Is Analysis
  • System Metaphors
  • What If Analysis
  • What If Analysis and Scenarios
  • How Much Questions and Goal Seek
  • Creating Subsystems
  • Common Size Balance Sheets and Common Size Income Statements
  • Common Size Statements and Trade-offs
  • Trend Analysis
  • Common Size Statements and Pro Forma Financial Statements
  • Summary and Conclusions
  • Questions

PART III: HOMOGENEOUS MEASURES AND PRESENT VALUE MODELS

Chapter 7: Homogeneous Measures

  • Introduction
  • What is a Present Value (PV) Model?
  • The Need for Homogeneous Measures
  • Homogeneous Time Measures
  • Homoegenous Measures and Cash Flow
  • Defenders and Challengers and Homogeneous Measures
  • Homogeneous Rates of Return Measures
  • Total Costs and Returns Measures
  • Other Homogeneous Measures
  • Summary and Conclusions
  • Questions

Chapter 8: Present Value Models

  • Introduction
  • Net Present Value Models
  • Internal Rate of Return (IRR) Models
  • Maximum Bid (Minimum Sell) Models
  • The Break-even Model
  • The Annuity Equivalent (AE) Model
  • Optimal Life Models
  • The Payback Model
  • Ranking Investments
  • IRR, ROA, and ROE
  • Summary and Conclusions
  • Questions

Chapter 9: Homogeneous Sizes

  • Introduction
  • Periodic and Initial Investment Sizes
  • Consistent IRR and NPV Rankings When the Reinvestment Rate is the Defender’s IRR
  • Consistent IRR and NPV Rankings Assuming Reinvestment Rates are the Challenging Investments’ IRRs
  • Resolving Initial Size Differences by Scaling
  • Resolving Initial Size Differences by Addition
  • Four Consistent Investment Ranking Models
  • Comments on the Four Investment Models and Ranking Consistency
  • When to Rank Challengers Using Four Models
  • Ranking Investments when the Challengers are not Mutually Exclusive
  • Common Practice, Common Problems, and Reinvestment Rates
  • Summary and Conclusions
  • Questions

Chapter 10: Homogeneous Terms

  • Introduction
  • Present Values and Capitalization Rates
  • More Complicated Capitalization Formulas
  • Ranking One-time Investments with Unequal Terms using NPV Models
  • Ranking One-time Investments with Unequal Terms using IRR Models.
  • IRR and NPV Models for Analyzing Repeatable Investments
  • Present Value (PV) Models and Averages
  • Numerical Demonstrations
  • Using Annuity Equivalents (AE) to Rank Repeatable Investments
  • Finding the Optimal Replacement Age for Different Repeatable Investments
  • Summary and Conclusions
  • Questions

Chapter 11: Homogeneous Tax Rates

  • Introduction
  • After-tax PV Models for Defenders and Challengers
  • A General Approach for Finding the Defender’s After-tax IRR
  • Tax Adjustment Coefficients in Finite Models
  • Ranking Investments and Taxes
  • Summary and Conclusions
  • Questions

Chapter 12: Homogeneous Rates of Return

  • Introduction
  • Finding Rates of Return on Assets (ROA) and Equity (ROE) from Accrual Income Statements (AIS)
  • Finding Internal Rates of Return on Assets (IRRA) and Equity (IRRE)
  • After-tax ROA and ROE Measures
  • After-tax Multi-period IRRE Models
  • After-tax Multi-period IRRA Models
  • A Generalized Template
  • Adjusting the PV Model Template to Calculate Earnings and Rate of Return on Assets and Equity
  • Consistent Investment Rankings and Returns on Assets versus Equity
  • Summary and Conclusions
  • Questions

Chapter 13: Homogeneous Investment Types

  • Introduction
  • Incremental Investments
  • Optimal Service Extraction Rates
  • Forecasting Future Values for PV Templates
  • Populating the PV Templates
  • Solving Practical Investment Problems: Green and Clean Services
  • Excel Spreadsheets for Describing Exogenous Variable Forecasts
  • More Sophisticated Forecasts for GCS
  • Incremental Investments
  • Summary and Conclusions
  • Questions

Chapter 14: Homogeneous Liquidity

  • Introduction
  • Current-to-Total-Returns (CTR) Ratio
  • Liquidity, Inflation, and Real Interest Rates
  • Liquidity Implications
  • Price-to-earnings (PE) Ratios
  • Coverage (C) Ratios
  • Summary and Conclusions
  • Questions

Chapter 15: Homogeneous Risk Measures

  • Introduction
  • Statistical Concepts Useful in Describing Risky Events and Risky Outcomes
  • The Normal Probability Density Function (pdf)
  • Direct and Indirect Outcome Variables
  • Firm Responses to Risk
  • Sharing Risky Outcomes
  • Reducing Risk by Purchasing Insurance
  • Diversification of Firm Investments
  • Purchase Risk Reducing Investments
  • Choosing an Optimal Capital Structure
  • Summary and Conclusions
  • Questions

PART IV: PRESENT VALUE MODEL APPLICATIONS

Chapter 16: Loan Analysis

  • Introduction
  • Comparing the Actuarial Rate, Annual Percentage Rate (APR), and Effective Interest Rate
  • Constant Payment Loans
  • Comparing Interest Paid, Loan Term, and Payment Amounts for Constant Payment Loans
  • Creating an Amortization Table for Constant Payment Loans
  • PVs of Special Loans
  • Disguised Interest Rates and Effective Interest Rates
  • Summary and Conclusions
  • Questions
  • Supplemental Materials

Chapter 17: Land Investments

  • Introduction
  • Why are land prices so volatile?
  • Maximum Bid (Minimum Sell) Price Models and Transaction Costs
  • Land Values, Transaction Costs, and Liquidity
  • Other Factors Contributing to Asset Liquidity
  • Maximum Bid (Minimum Sell) Land Price Models with Taxes
  • Finding the Tax Adjustment Coefficient θ
  • Price-to-earnings Ratios for Land
  • Summary and Conclusions
  • Questions

Chapter 18: Leases

  • Introduction
  • Types of Lease Agreements
  • Lease Agreements and Taxes
  • Lease Liquidity and Risk
  • Net Present Cost of Leasing versus Purchasing
  • Comparative Advantages for Leasee and Leasor
  • Summary and Conclusions
  • Questions

Chapter 19: Financial Investments

  • Introduction
  • Valuation of Riskless Securities
  • Compound Interest
  • Bonds
  • Coupons and Bonds
  • Common Stocks
  • Summary and Conclusions
  • Questions
  • Derivation 19.1.
  • Derivation 19.2.

Chapter 20: Yield Curves

  • Introduction
  • Geometric Means and Periodic Discount Rates
  • Predicting Future Economic Activities and Opportunities and Threats
  • Summary and Conclusions
  • Questions

Epilogue (Chapter 21): One Thing More…

  • Introduction
  • Anomalies
  • Commodities and Relational Goods
  • Two setting for exchanging relational goods
  • Anomalies and Isoutilities
  • Summary and Conclusions
  • Questions

Back Matter

License

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Financial Management for Small Businesses: Financial Statements & Present Value Models Copyright © 2020 by Lindon J. Robison is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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