Lessons in corporate finance: a case studies approach to financial tools, financial policies, and valuation.

Abstract

On Tuesday, March 24, 2015, the share price of Google rose 2%, a roughly $8 billion increase in the value of the firm’s equity. Was the large increase in Google’s equity value because the firm’s profits were up? No. Was the positive stock price reaction due to some good news about a new Google product? No. The reaction was due to Google’s announcement that it was hiring Ruth Porat as its new chief financial officer (CFO). Why would the hiring of a new CFO cause Google’s stock price to jump? According to the Wall Street Journal, Wall Street hoped the new CFO would bring “fiscal control at a company long known for its free spending ways.”1 Lessons in Corporate Finance is about the principal decisions in corporate finance (in other words, the decisions of CFOs like Google’s Ruth Porat). These decisions focus on: how to decide in which projects the firm should invest, how to finance those investments, and how to manage the firm’s cash flows. This is an applied book that will use real‐world examples to introduce the financial tools needed to make value‐enhancing business decisions. The book is designed to explain the how and why of corporate finance. While it is primarily aimed at finance professionals, it is also ideal for nonfinancial managers who have to deal with financial professionals. The book provides a detailed view of the inner functioning of corporate finance for anyone with an interest in understanding finance and what financial professionals do. The book would fit well in a second course in finance, as supplemental readings to an executive education course, or as a self‐study book on corporate finance (e.g., those studying for the CFA or similar certifications). The authors believe that any business professional, even someone with a degree in finance, will find the book to be a valuable review. While the book can be read without extensive knowledge of accounting or finance, the book is written for those with at least a basic knowledge of accounting and finance terminology.