The Portable MBA in Finance and Accounting, Fourth Edition

600 Pages·2009·5.68 MB·English

The
Portable
MBA
in
FINANCE
and
ACCOUNTING
The
Portable
MBA
in
FINANCE
and
ACCOUNTING
F O U R T H E D I T I O N
Edited by
Theodore Grossman and
John Leslie Livingstone
John Wiley & Sons, Inc.
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10 9 8 7 6 5 4 3 2 1
Contents
ListofDownloadableMaterials vii
Syllabus:HowChapterTopicsinThisBookTrackthe
CoreMBACurriculum ix
Preface xi
Acknowledgments xv
AbouttheContributors xvii
PARTI FINANCIALACCOUNTING
1 UnderstandingFinancialStatements 3
LesLivingstone
2 AnalyzingFinancialStatements 19
LesLivingstone
3 AnalyzingBusinessEarnings 39
VirginiaEarllSoybel
PARTII FINANCIALMANAGEMENT
4 DiscountedCashFlow 103
JamesA.Elfter
5 CapitalStructure 129
CraigA.Stephenson
6 PlanningCapitalExpenditure 165
StevenP.Feinstein
7 GlobalFinance 187
MichaelJ.Riley
PARTIII BUSINESSENTITIES
8 ChoosingaBusinessForm 211
RichardP.Mandel
9 TaxesandBusinessDecisions 243
RichardP.Mandel
v
vi Contents
10 TheIntegrityofFinancialReporting 277
LesLivingstone
PARTIV MANAGEMENTACCOUNTING
11 ForecastsandBudgeting 291
RobertF.Halsey
12 CostStructureAnalysis,ProfitPlanning,andValueCreation 317
WilliamC.Lawler
13 Activity-BasedCosting 335
WilliamC.Lawler
PARTV PLANNINGANDSTRATEGY
14 BusinessPlanning 353
AndrewZacharakis
15 FinancialManagementofRisks 383
StevenP.Feinstein
16 BusinessValuation 413
MichaelA.Crain
17 ProfitableGrowthbyAcquisition 445
RichardT.Bliss
18 Outsourcing 477
TheodoreGrossman
PARTVI ADVANCEDTOPICS
19 InformationTechnologyandYou 499
DawnaTravisDewire
20 InformationTechnologyandtheFirm 527
DawnaTravisDewire
21 CareersinFinance 559
TraceePetrilloandRalphJ.Constantino
Glossary 577
Index 589
List of Downloadable Materials
For access to the following list of downloadable materials for The Portable
MBAinFinanceandAccounting,Fourthedition,pleasevisitwww.wiley.com/go/
portablembainfinance
UnderstandingFinancialStatementsBalanceSheet:Liabilities+Equity
AnalyzingFinancialStatements:DirectCompetitorComparisonWorksheet
AnalyzingFinancialStatements:FinancialStatementRatioAnalysis
AdjustmentWorksheetforSustainableEarningsBase
AdjustmentWorksheetforSustainableEarningsBase,Pfizer,Inc.
DiscountedCashFlow:UsingExceltoSolveFinancialFormulas
DiscountedCashFlowWeb
CapitalStructureProblemsandSolutions
The Integrity of Financial Accounting: Sarbanes-Oxley and Fraudulent Financial
Reporting
InformationabouttheSarbanes-OxleyActandCorporateGovernanceandFinancial
Reporting
EthicsandtheGoldenRule
InformationTechnologyandYou
InformationTechnologyandtheFirm
vii
Syllabus
How Chapter Topics in This Book Track the Core
MBA Curriculum
Ifoneweretoreviewthecorecurriculumforfirst-yearstudentsofferedbymostofthe
majorMBAprograms,onewouldfind,inoneformoranother,thefollowingcourses:
(cid:2)
FinancialAccounting
(cid:2)
ManagementAccounting
(cid:2)
FinancialManagement
(cid:2)
BusinessLawandBusinessEntities
(cid:2)
PlanningandStrategy
(cid:2)
InformationSystems
(cid:2)
OperationsManagement
(cid:2)
DecisionSupportorManagementSciences
(cid:2)
Marketing
(cid:2)
ManagerialEconomics
(cid:2)
OrganizationalBehavior
(cid:2)
EntrepreneurialThinking
Ofcoursethisvariesfromschooltoschool;however,thevastmajorityfollowthispattern,
including Harvard University, the University of Michigan, Babson College, Stanford
University,ColumbiaUniversity,andmanyothers.
Whilethisbookmakesnoattempttocovertheentirecorecurriculum,itdoescover
most, if not all, of the accounting and finance topics, as well as several others. The
followingtablecomparesthechaptertopicswiththetypicalcoursesthatwouldbeinan
MBAprogram.
ix
x Syllabus
Financial Financial Business Management Planning Advanced
Accounting Management Entities Accounting andStrategy Topics
Chapter1. Chapter4. Chapter8. Chapter11. Chapter14. Chapter19.
Understanding Discounted Choosinga Forecastsand Business Information
Financial CashFlow BusinessForm Budgeting Planning Technology
Statements andYou
Chapter2. Chapter5. Chapter9. Chapter12. Chapter15. Chapter20.
Analyzing Capital Taxesand CostStructure Financial Information
Financial Structure Business Analysis,Profit Management Technology
Statements Decisions Planning,and ofRisks andtheFirm
ValueCreation
Chapter3. Chapter6. Chapter10. Chapter13. Chapter16. Chapter21.
Analyzing Planning TheIntegrity Activity-Based Business Careersin
Business Capital ofFinancial Costing Valuation Finance
Earnings Expenditure Reporting
Chapter7. Chapter17.
GlobalFinance Profitable
Growthby
Acquisition
Chapter18.
Outsourcing
Preface
Since the third edition of this book was published in late 2001, much has happened to
reshape the business world as we now know it. Our financial system almost collapsed.
Stalwarts like Lehman Brothers and Merrill Lynch ceased to exist because they had
assumed huge risk in financial instruments that were vastly overvalued. The mortgage
marketcollapsedandalongwithitwentahostoffinancialcompaniesandbanksthathad
invested in subprime mortgage-backed securities. Bernie Madoff went from obscurity
to become ahousehold name after allegedly bilkinginvestors out ofapproximately $50
billioninthelargest-everPonzischeme.Thestockmarketlost35%ofitsvalue.Personal
401(k)retirementaccountsweredevastated,andpeoplehadtorethinktheirretirement
plans. Companies planning to use their stock to finance the purchase of acquisitions
found that the value of their stock had plunged. Credit became tight and financing
difficult.
AsaresultoftheEnronscandal,corporategovernancehasbecomeahottopic,with
potentialliabilityforCEOsandCFOsandwithmuchincreasedandhighlyexpensiveand
cumbersome added requirements for internal control imposed by the 2002 Sarbanes-
OxleyAct.
Alloftheseissueshavecreatedanewfinancialworldthatrequiresspecialskillsfora
managertosucceed.Doyouhavethoseskillsets?
Doyouknowhowtoaccomplishtheseimportantbusinesstasks?
(cid:2)
Understandfinancialstatements.
(cid:2)
Measureliquidityofabusiness.
(cid:2)
Analyzebusinessprofitability.
(cid:2)
Differentiatebetweenregularincomeandextraordinaryitems.
(cid:2)
Predictfuturebankruptcyforanenterprise.
(cid:2)
Prepareabudget.
(cid:2)
Doabreak-evenanalysis.
(cid:2)
Figureoutreturnoninvestment.
(cid:2)
Computethecostofcapital.
(cid:2)
Puttogetherabusinessplan.
(cid:2)
Legitimatelyminimizeincometaxespayablebyyouoryourbusiness.
(cid:2)
Decidewhatyourobligationsareasanofficerordirectorofthecompany.
xi
xii Preface
(cid:2)
Determinetheimplicationsofoutsourcingaproduct,afunction,oraprojecteither
domesticallyorinternationally.
(cid:2)
Manageforeigncurrencyexposure.
(cid:2)
Evaluateamergeroracquisitiontarget.
(cid:2)
Serveasadirectorofacorporation.
(cid:2)
Buildasuccessfule-business.
(cid:2)
Understandandusefinancialderivatives.
(cid:2)
Useinformationtechnologyforcompetitiveadvantage.
(cid:2)
Valueabusiness.
Thesearesomeofthekeytopicsexplainedinthisbook.Itisabookdesignedtohelp
youlearnthebasicsinfinanceandaccounting,withoutincurringtheconsiderabletime
andexpenseofaformalMBAprogram.Thebookconsistsofvaluable,practicalhow-to
information, applicable to an entire range of businesses, from the smallest start-up to
the largest corporations in the world. Each chapter of the book has been written by an
outstandingexpertinthesubjectmatterofthatparticularchapter.Someoftheseexperts
arefull-timepractitionersintherealworld,andothersarebusinessschoolprofessorswith
substantialreal-worldexperiencewhoalsoserveaspart-timemanagementconsultants.
Most of these professors are on the faculty of Babson College, which is famous for its
majorcontributionstothefieldofentrepreneurship,andwhichyearafteryearisatthe
topoftheannuallistofleadingindependentbusinessschoolscompiledbyU.S.News&
World Report and the University of Maryland’s University College, a leading Internet
universitywith100,000students,including3,000MBAstudents.
The first edition of this book was published in 1992, the second edition in 1997,
and the third in 2001. All of the editions, hardback and paperback, have been highly
successful,andhavesoldmany,manycopies.Inaddition,thebookhasbeentranslated
intoChinese(CantoneseandMandarin),Indonesian,Portuguese,Russian,andSpanish.
Wearedelightedthatsomanyreadersinvariouscountrieshavefoundthisbookuseful.
Now,theentirebookhasbeenupdatedforthefourthedition.Newchaptershavebeen
addedonthefollowingsubjects:
(cid:2)
DiscountedCashFlow.
(cid:2)
AnalyzingFinancialStatements.
(cid:2)
CapitalStructure.
(cid:2)
TheIntegrityofFinancialReporting.
(cid:2)
Outsourcing.
(cid:2)
CareersinFinance.
Also,therearesixnewauthors,substantialrevisionsofseveralchapters,andcomplete
updatesoftheremainingchapters.
Someofthechaptersincludeadditionalonlinematerialsthatwillreinforcethemateri-
alscontainedinthechapters.Pleasegotowww.wiley.com/go/portablembainfinance.com
toaccesstheonlinematerialsthataredesignatedforthisbook.
This book can be read, and reread, with a great deal of profit. Also, it can be kept
handyonanearbyshelfsoyoucanpullitdownandlookupanswerstoquestionsasthey