Financial Analysis Tools and Techniques

510 Pages·2001·3.3 MB·English

by  Helfert, Erich

Y

L
F

M

A

E

T

Team-Fly®
hel78340_FM.qxd 9/27/01 10:56 AM Page i
COMMENTS ABOUTERICH A. HELFERTAND THIS BOOK
“Erich Helfert’s book is a bona fide treasury for executives, managers, and entrepreneurs
who need to understand financial management. I have used and recommended this great
work in both corporate and university programs for more than ten years. Erich Helfert pos-
sesses unique abilities to make clear the arcane that frequently enshrouds topics of finan-
cial management.”
Allen B. Barnes
Past Provost
IBM Advanced Business Institute
(formerly Director of Executive Education, UCLA)
“Erich Helfert’s book is a candidate for every consultant-to-management’s bookshelf. The
underlying agenda is financial management as it pertains to effective resource allocation de-
cisions. Framed in a dynamic model of the Business System, the beauty of Helfert’s presen-
tation lies in its treatment of subsystems that differentiate between investment, operations and
financing decisions, but which are also integrated into the overall managerial fabric.”
Stanley Press CMC
Book review September 2000
C2M Consulting to Management Journal
“Erich Helfert possesses a rare ability to make financial concepts understandable to individu-
als who lack a financial background. As a result we had Dr. Helfert conduct shareholder value
creation classes for all senior managers and create a shareholder value course for all other
salaried and hourly employees. The results of these efforts exceeded our high expectations.”
L. Pendleton Siegel
Chairman and Chief Executive Officer
Potlatch Corporation
“Erich Helfert has played an instrumental role in teaching HPmanagers of both financial
and non-financial backgrounds in our long-standing Functional Management Program. His
excellent financial overviews and simplified models effectively broaden our managers’
understanding and ownership of their fiscal responsibility to HPand our shareholders.”
Robert P. Wayman
Executive Vice President and
Chief Financial Officer
Hewlett-Packard Company
“Dr. Helfert’s book and his teachings go a long way toward removing the mystery from the
financial workings of an enterprise. His approach allows managers from all areas of the busi-
ness to understand how their decisions impact shareholder value.”
Stephen E. Frank
President and Chief Operating Officer
Southern California Edison
“Erich Helfert has contributed to the development of financial skills of TRWmanagers
through his case study preparation and presentations, his book Techniques of Financial
Analysis, and his instruction. He continues to be included as a highly rated faculty member
in TRW’s management development programs.”
Peter S. Hellman
Past President and Chief Operating Officer
TRW Inc.
This page intentionally left blank.
hel78340_FM.qxd 9/27/01 10:56 AM Page iii
FINANCIAL
ANALYSIS: TOOLS
AND TECHNIQUES
A Guide for Managers
ERICH A. HELFERT, D.B.A.
McGraw-Hill
New York Chicago San Francisco
Lisbon London Madrid Mexico City Milan
New Delhi San Juan Seoul Singapore Sydney Toronto
abc
McGraw-Hill
Copyright ©2001 by The McGraw-Hill Companies. All rights reserved. Manufactured in the United States of America. Except as
permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form
or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher.
0-07-139541-5
The material in this eBook also appears in the print version of this title: 0-07-137834-0.
All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trade-
marked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of
infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps.
McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corpo-
rate training programs. For more information, please contact George Hoare, Special Sales, at [email protected]
or [phone].
TERMSOFUSE
This is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGraw-Hill”) and its licensors reserve all rights in and
to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to
store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create deriv-
ative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-
Hill’s prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly
prohibited. Your right to use the work may be terminated if you fail to comply with these terms.
THE WORK IS PROVIDED “AS IS”. McGRAW-HILLAND ITS LICENSORS MAKE NO GUARANTEES OR WAR-
RANTIES AS TO THE ACCURACY, ADEQUACYOR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM
USING THE WORK, INCLUDING ANYINFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA
HYPERLINK OR OTHERWISE, AND EXPRESSLYDISCLAIM ANYWARRANTY, EXPRESS OR IMPLIED, INCLUD-
ING BUTNOTLIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITYOR FITNESS FOR APARTICULAR
PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the functions contained in the work will meet your
requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you
or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom.
McGraw-Hill has no responsibility for the content of any information accessed through the work. Under no circumstances shall
McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that
result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This
limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or other-
wise.
DOI: 10.1036/0071395415
hel78340_FM.qxd 9/27/01 10:56 AM Page v
To Anne
This page intentionally left blank.
hel78340_FM.qxd 9/27/01 10:56 AM Page vii
A B O U T T H E A U T H O R
Erich A. Helfert is an internationally recognized management consultant in cor-
porate finance, strategic planning, and executive education in financial/economic
decision making and shareholder value creation. He gained his professional expe-
rience from a combination of distinguished business and academic careers.
Dr.Helfert was vice president, corporate planning, at Crown Zellerbach Corpora-
tion, a major integrated paper and forest products company. Prior to his 20-year
corporate career, he served on the faculty of the Harvard Graduate School of Busi-
ness for eight years, teaching finance and managerial economics in the MBApro-
gram, and consulting in management development and strategy with major
companies.
Anative of the Sudetenland, formerly Austria, he received his BS from the
University of Nevada and earned both an MBA(with high distinction) and a DBA
(as a Ford Foundation Fellow) at the Harvard Business School. Dr. Helfert writes
and lectures extensively in his field, and his books and articles have been pub-
lished in the United States and abroad. His first literary work, Valley of the
Shadow,a factual historical novel about his experiences in central Europe at the
end of World War II, was published recently.
Dr. Helfert is cofounder, chairman and CEO of Modernsoft, Inc., San Ma-
teo, California, developers of Financial Genome,an advanced knowledge-based
financial analysis and business modeling software, which is complementary to Fi-
nancial Analysis: Tools and Techniques.
vii
Copyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use.
This page intentionally left blank.
hel78340_FM.qxd 9/27/01 10:56 AM Page ix
C O N T E N T S
Preface xvii
Introduction xxi
Chapter1
The Challenge of Financial/Economic Decision-making 1
Lessons for the Millennium 2
The New Economy 2
Some Key Questions 3
The Basics Never Change 6
The Economic Manager 7
Understanding Business Economics 8
Appropriate Economic Tools 9
The Practice of Financial/Economic Analysis 10
Day to Day Decisions and Operational Planning 10
Supporting Strategy Development 11
Performance Assessment and Incentives 12
Valuation and Investor Communications 14
The Value Creating Company 15
Relevant Decision Information 15
Economic Incentives 17
Total Systems Management 18
Chapter2
ASystems Context forFinancial Management 21
ADynamic Perspective of Business 22
Decision Context 22
The Business System 26
Investment Decisions 29
Operating Decisions 31
Financing Decisions 33
Interrelationship of Strategy and Value Creation 36
ix
Copyright 2001 The McGraw-Hill Companies, Inc. Click Here for Terms of Use.