Preface To The Seventh Edition

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Preface to the Seventh Edition

Financial Management: Theory and Practice, 7/e is designed as a comprehensive


reference cum textbook in financial management. This book seeks to:

 Build understanding of the central ideas and theories of modern finance.


 Develop familiarity with the analytical techniques helpful in financial decision
making.
 Furnish institutional material relevant for understanding the environment in which
financial decisions are taken.
 Discuss the practice of financial management.

The primary thrust of the book is to show how financial theory can be applied to solve
problems in practice. An attempt has been made to relate theory to practice. Of course,
the theory presented has its imperfections and inadequacies—which theory does not? Yet,
theory is a potent tool for analysing practical problems.

A Response to Evolving Concerns

The past two decades have witnessed a dramatic transformation of the Indian business
and financial scene, thanks to deregulation, liberalisation, partial privatisation,
globalisation, automation, and the ascendance of the services sector.

In the wake of these developments, investment and financing avenues have expanded
considerably, competition has intensified in all sectors, institutional investors have
become a major force, financial prices have become more volatile, corporates have grown
in size and complexity, and intangible assets have assumed greater significance.

In response to these opportunities and challenges, shareholder's value has become the
central corporate agenda, mergers, acquisitions, and restructuring have gathered
momentum, financial derivatives have emerged as tools for risk management, corporate
governance and transparency have received a lot of emphasis, and performance
management has become a major concern.

This book, in its various editions, has tried to capture the central themes and evolving
concerns of corporate financial management. It can justifiably claim to be the most
contemporary and comprehensive Indian book in the field. This is reflected in its growing
popularity among management students and practitioners.

Changes in the Seventh Edition

Enthused by the overwhelming response to the previous edition of this book and prodded
by the suggestions received from the readers, I have added new material, integrated
spreadsheet analysis in the book, and provided answers to the end-of-the chapter
problems and mini cases.
New Material: The following new material has been added to enrich the book.

 Two new chapters titled 'Risk and Return: Portfolio Theory and Asset Pricing’
(Chapter 9) and ‘The State of Our Knowledge’ (Chapter 41) have been added.
 Ten new sections or appendices have been included at different places: ‘Business
Ethics and Corporate Social Responsibility,’ ‘Financial Modeling Using
Spreadsheets,’ ‘Key Growth Rates,’ ‘Factors Affecting the Weighted Average Cost
of Capital,’ ‘Misconceptions Surrounding Cost of Capital,’ ‘Investment Banking,’
‘Leverage Analysis,’ ‘Working Capital Leverage,’ ‘Comprehensive Value Metrics
Framework,’ and ‘Debt Restructuring.’
 12 new mini cases have been added on the following topics: ‘Valuation of Bonds
and Stocks,’ ‘Portfolio Theory and Capital Asset Pricing,’ ‘Options and Their
Valuation,’ ‘Techniques of Capital Budgeting,’ ‘Raising Long-term Finance,’
‘Capital Structure Decision,’ ‘Dividend Decision,’ ‘Leasing, Hire Purchase, and
Project Finance,’ ‘Cash and Liquidity Management,’ ‘Value Based Management,’
‘International Financial Management,’ and ‘Corporate Risk Management.’
 A number of boxes capturing new insights and contemporary practices have been
included.

Spreadsheet Models At a number of places spreadsheet models have been integrally


woven in the book. This will help students from the practical point of view because
spreadsheet models are extensively used in practice.

Answers to Problems and Mini Cases Answers to the end-of-chapter problems and
mini cases are given at the end of the book. This will help students in verifying whether
they have got the answers right.

Ancillary Materials

To enhance the utility of the book for students and instructors, the following ancillary
materials are available.

 Spreadsheet Templates Dr. V. Nagadevara of Indian Institute of Management,


Bangalore developed the spreadsheet templates in Excel. They correlate with
various concepts in the text and are meant to help students work through financial
problems. These spreadsheet templates may be downloaded from
http://highered.mcgraw-hill.com/sites/0070656657

 Additional Problems A number of additional problems have been given for


students who what to practice more. These may be downloaded from
http://highered.mcgraw-hill.com/sites/0070656657

 Solutions Manual The solutions manual contains solutions to end-of-chapter


problems. The solutions can be accessed by instructors who adopt the book. They
may contact Tata McGraw-Hill for assistance in accessing the solutions manual.
Special Features

Designed to provide a firm grounding in the principles, techniques, and practice of


financial management, this book has the following special features:
 Comprehensive Coverage It covers a wide spectrum of topics in financial
management quite comprehensively. Some of the topics like ‘Value Based
Management’, ‘Financial Management in Sick Units’, ‘Financial Management in
Intangible-Intensive Companies’, and ‘The State of Our Knowledge’ are not
found in most other books.
 Decisional Focus and Analytical Approach This book primarily seeks to show
how a wide range of financial decision situations should be analysed. An attempt
has been made to describe the setting of various decisions, dwell on the
quantitative and qualitative considerations relevant for such decisions, and explain
analytical methods which are helpful in analysing these decisions.
 Numerous Illustrations Various concepts, tools, and techniques of financial
management have been illustrated with suitable examples. Where necessary, two
or three examples of gradually increasing complexity have been provided.
 Discussion of Practice In several important areas of financial management like
capital expenditure analysis, cost of capital, risk analysis, credit management,
capital structure planning, and dividend policy, the practice of business firms has
been described and evaluated.
 Procedural Orientation Procedural aspects of term loan financing, public issue
of capital, lease financing, mergers and amalgamations and so on have been
discussed. This is meant to give the reader a feel for ‘how to go about’ in the
world of finance.

Organisation and Use of the Text


There are several ways of organising the material presented in this book. So, I have made
the book highly modular. This gives the instructor a great deal of flexibility in sequencing
the material.

I have used the material in this book for a set of two courses—basic and advanced. For
the basic course titled ‘Financial Management’ or ‘Corporate Finance’ or ‘Managerial
Finance’, I have used Parts 1 through 5 and Parts 7 and 8 with the following exceptions:
Chapter 10: Options and Their Valuation, Chapter 15: Capital Budgeting—Extensions,
and Chapter 31: Working Capital Management—Extensions.

For the advanced course titled ‘Strategic Financial Management’ or Advanced Financial
Management’ or ‘Topics in Finance’ I have used the rest of the book.

While the book is primarily targeted at students of MBA, CFM, ACA, AICWA, CFA and
ACS programmes and finance professionals, it will be useful for all managers interested
in understanding the financial dimensions of business.

PRASANNA CHANDRA

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