Foreword

The subject of corporate finance is explored in a hundred books, most of which have a formidable and forbidding aspect to them. They contain page after page of dense text interspersed with complex equations and obscure terminology.

The sheer volume of material and its method of presentation suggests that this is a subject that can be conquered only by the most hardy of adventurers. However, the truth is that the sum and substance of this area of knowledge consists of a relatively small number of essential financial measures by means of which we can appraise the success of any commericial enterprise.

These measures are derived from relationships that exist between various financial parameters in the business. While each measure in itself is simple to calculate, comprehension lies not in how to do the calculations but in understanding what these results mean and how the results of different measures mesh together to give a picture of the health of a company.

The first edition of this book set out to remove the obscurity and complexity so as to make the subject accessible to all business managers. It turned out to be very successful.

In this fourth edition, the same basic structure and approach is used. However, the examples and the benchmark data have been updated and expanded to make the book more relevant to a wider audience.

Data have been drawn from approximately 200 companies worldwide so the results have very wide usage.

In the third edition, a new chapter was added (chapter 18) to illustrate how the techniques used throughout the book can be used for the analysis of a proposed acquisition. It shows first how to value the two companies in relative terms and then how to value them in absolute terms using an SVA approach.

SVA is an exciting new area of analysis that all managers will want to become familiar with because it is one that will have most impact on their responsibilities over the coming years.

In this fourth edition, a further chapter is added (chapter 19). This examines the subject of the integrity of accounting statements, discusses when and how integrity may be breached and suggests methods of detection.