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Lessons in
Corporate Finance
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Lessons in
Corporate Finance
A Case Studies Approach to
Financial Tools, Financial Policies,
and Valuation
SECOND EDITION
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PAUL ASQUITH
LAWRENCE A. WEISS
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Copyright©2019byPaulAsquithandLawrenceA.Weiss.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData:
Names:Asquith,Paul,1948–author.|Weiss,LawrenceA.(LawrenceAlan),
author.
Title:Lessonsincorporatefinance:acasestudiesapproachtofinancial
tools,financialpolicies,andvaluation/PaulAsquith,LawrenceA.Weiss.
Description:Secondedition.|Hoboken:Wiley,2019.|Series:Wileyfinance
|Includesindex.|Revisededitionoftheauthors’Lessonsincorporate
finance,[2016]|
Identifiers:LCCN2019000078(print)|LCCN2019001680(ebook)|ISBN
9781119537939(ePDF)|ISBN9781119537892(ePub)|ISBN9781119537830
(hardback)
Subjects:LCSH:Corporations—Finance.|Valuation.|BISAC:BUSINESS&
ECONOMICS/CorporateFinance.
Classification:LCCHG4026(ebook)|LCCHG4026.A872019(print)|DDC
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Tothosewhotaught me.
–Paul
ForMarilyn,mywifeandbestfriend;Joshua;andDaniel;
allofwhomIwillloveforever.
–Larry
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Contents
AbouttheAuthors xiii
Acknowledgments xv
Preface xvii
CHAPTER1
Introduction 1
TwoMarkets:ProductandCapital 2
TheBasics:ToolsandTechniques 3
ADiagramofCorporateFinance 4
ABriefHistoryofModernFinance 5
ReadingThisBook 6
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PARTONE
FinancialHealthofaFirmandCashFlowManagement
CHAPTER2
DeterminingaFirm’sFinancialHealth(PIPES-A) 11
TheConversationwiththeBankerIsLikeaJobInterview 11
StartingwiththeProductMarketStrategy 13
IsPIPESProfitable? 14
DoingtheMath 14
SourcesandUsesofFunds 16
RatioAnalysis 20
TheCashCycle 26
Summary 28
CHAPTER3
ProFormaForecasts(PIPES-B) 31
First,Let’sTakeaCloserLookatRatioAnalysis 31
ProFormaForecasts 33
CircularRelationships 40
Backto(Forecasting)theFuture 42
ProjectingOutto2018and2019 43
EvaluatingtheLoan 45
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viii CONTENTS
Summary 50
Appendix3A:AccountingIsNotEconomicReality 52
CHAPTER4
TheImpactofSeasonalityonaFirm’sFunding(PIPES-C) 57
MonthlyProFormaIncomeStatements 58
MonthlyProFormaBalanceSheets 60
ADifferentPictureoftheFirm 68
Summary 72
Appendix4A:PIPESMonthlyProFormaIncomeStatementsandBalance
Sheets,2018 73
Appendix4B:PIPESMonthlyProFormaIncomeStatementsandBalance
Sheets,2019 76
PARTTWO
FirmFinancingandFinancialPolicies
CHAPTER5
WhyFinancingMatters(MasseyFerguson) 81
ProductMarketPositionandStrategy 81
PoliticalRiskandEconomiesofScaleinProduction 82
(cid:2) MasseyFerguson,1971–1976 83 (cid:2)
SustainableGrowth 85
ThePeriodafter1976 87
ConradRunsAway 90
TheCompetitors 91
BacktoMassey 93
Massey’sRestructuring 96
Postscript:WhatHappenedtoMassey 100
Summary 100
Appendix5A:MasseyFergusonFinancialStatements 102
CHAPTER6
AnIntroductiontoCapitalStructureTheory 107
OptimalCapitalStructure 108
M&MandCorporateFinance 111
Taxes 116
CostsofFinancialDistress 126
TheTextbookViewofCapitalStructure 131
TheCostofCapital 133
Summary 134
CHAPTER7
CapitalStructureDecisions(MarriottCorporationandGaryWilson) 137
CapitalStructure 137
TheCostofCapital 144
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