Table of contents for Principles of managerial finance : brief / Lawrence J. Gitman.

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Brief Contents
Detailed Contents 
xv 
Preface 
xxv 
Revised Content 
xxviii 
Supplements to the Fifth Edition 
xxxi 
Acknowledgments 
xxxiv 
To the Student 
xxxvii 
PART ONE 
Introduction 
to Managerial Finance 
1 
1 
The Role and Environment 
of Managerial Finance 
2 
2 
Financial Statements and Analysis 
40 
3 
Cash Flow and Financial Planning 
95 
PART TWO 
Important Financial 
Concepts 
141 
4 
Time Value of Money 
142 
5 
Risk and Return 
201 
6 
Interest Rates and Bond Valuation 
243 
7 
Stock Valuation 
281 
PART THREELong-Term Investment Decisions 321 
8 Capital Budgeting Cash Flows 322 9 Capital Budgeting Techniques: Certainty and Risk 361 
PART FOURLong-Term Financial Decisions 411 
10 The Cost of Capital 412 11 Leverage and Capital Structure 449 12 Dividend Policy 493 
PART FIVE 
Short-Term Financial Decisions 523 
13 14 
Working Capital and Current AssManagement Current Liabilities Management 
ets 
524 566 
AP
PENDIXES 
A B C 
Financial Tables A-1 Solutions to Self-Test Problems B-1 Answers to Selected End-of-Chapter Problems C-1 
Web Chapter: Financial Markets and Institutions on the book's Companion Website 
www.prenhall.com/gitman 
Web Chapter: International Managerial Finance on the book's Companion Website 
www.prenhall.com/gitman 
Glossary G-1 Index I-1 
Contents
Preface xxv Revised Content xxviii Supplements to the Twelfth Edition xxxi Acknowledgments xxxiv To the Student xxxvii 
Part One 
Introduction to Managerial Finance 1 
Chapter 1 
The Role and Environment of Managerial Finance 2 
1.1Finance and Business 3 
What Is Finance? 3 Major Areas and Opportunities in Finance 3 Legal Forms of Business Organization 4 Why Study Managerial Finance? 7 Review Questions 8 
1.2	The Managerial Finance Function 8 
Organization of the Finance Function 9 Relationship to Economics 9 Relationship to Accounting 10 Primary Activities of the Financial Manager 12 Review Questions 12 
1.3Goal of the Firm 13 
Maximize Profit? 13 Maximize Shareholder Wealth 14 Corporate Governance 15 The Role of Business Ethics 16 The Agency Issue 17 Review Questions 19 
1.4Financial Institutions and Markets 20 
Financial Institutions 20 Financial Markets 21 The Relationship between Institutions 
and Markets 21 The Money Market 21 The Capital Market 22 IN PRACTICE Focus on Practice: Berkshire Hathaway-Can Buffet Be Replaced? 26 Review Questions 27 
1.5Business Taxes 27 
Ordinary Income 27 Capital Gains 30 Review Questions 30 Summary 30 Self-Test Problem 32 Warm-Up Exercises 32 Problems 34 Chapter 1 Case: Assessing the Goal 
of Sports Products, Inc. 37 Spreadsheet Exercise 38 Web Exercise 38 
xvi CONTENTS 
Chapter 2 
Financial Statements and Analysis 40 
2.1 The Stockholders' Report 41 
The Letter to Stockholders 41 The Four Key Financial Statements 42 Notes to the Financial Statements 48 
IN PRACTICE Focus on Practice: Is It Time to Change SOX? 49 Consolidating International Financial 
Statements 49 Review Questions 50 
2.2 Using Financial Ratios 50 
Interested Parties 50 Types of Ratio Comparisons 51 Cautions about Using Ratio Analysis 53 Categories of Financial Ratios 54 Review Questions 54 
2.3 Liquidity Ratios 54 
Current Ratio 54 Quick (Acid-Test) Ratio 55 Review Question 56 
2.4 Activity Ratios 56 
Inventory Turnover 56 Average Collection Period 57 Average Payment Period 58 Total Asset Turnover 58 Review Question 59 
2.5 Debt Ratios 59 
Debt Ratio 60 Times Interest Earned Ratio 61 
Chapter 3 
Cash Flow and Financial Planning 95 
3.1 Analyzing the Firm's Cash Flow 96 
Depreciation 96 Developing the Statement of Cash Flows 99 Operating Cash Flow 102 
Fixed-Payment Coverage Ratio 61Review Questions 62
2.6 Profitability Ratios 62 
Common-Size Income Statements 62 Gross Profit Margin 63 Operating Profit Margin 63 Net Profit Margin 64 Earnings per Share (EPS) 64 Return on Total Assets (ROA) 65 Return on Common Equity (ROE) 65 Review Questions 65 
2.7 Market Ratios 66 
Price/Earnings (P/E) Ratio 66 Market/Book (M/B) Ratio 66 Review Question 67 
2.8 A Complete Ratio Analysis 67 
Summarizing All Ratios 67 DuPont System of Analysis 71 Review Questions 74 
Summary 74 
Self-Test Problems 75 
Warm-Up Exercises 76 
Problems 78 
Chapter 2 Case: Assessing Martin 
Manufacturing's Current 
Financial Position 90 
Spreadsheet Exercise 92 
Web Exercise 94 
Free Cash Flow 105 IN PRACTICE Focus on Practice: Free Cash Flow at eBay 106 Review Questions 107 
3.2 The Financial Planning Process 107 
Long-Term (Strategic) Financial Plans 107 Short-Term (Operating) Financial Plans 108 Review Questions 108 
3.3Cash Planning: Cash Budgets 109 
The Sales Forecast 109 Preparing the Cash Budget 110 Evaluating the Cash Budget 115 Coping with Uncertainty in the Cash Budget 116 Review Questions 117 
3.4Profit Planning: Pro Forma Statements 117 
Preceding Year's Financial Statements 118 Sales Forecast 119 Review Question 119 
3.5Preparing the Pro Forma Income Statement 119 
Considering Types of Costs and Expenses 120 Review Questions 121 
CONTENTS xvii 
3.6Preparing the Pro Forma Balance Sheet 121 
Review Questions	123 
3.7Evaluation of Pro Forma Statements 123 
Review Questions 124 Summary 124 Self-Test Problems 126 Warm-Up Exercises 128 Problems 128 Chapter 3 Case: Preparing Martin 
Manufacturing's 2010 Pro Forma 
Financial Statements 137 Spreadsheet Exercise 138 Web Exercise 139 
Part Two 
Important Financial Concepts 141 
Chapter 4 
Time Value of Money 
4.1	The Role of Time Value in Finance 
Future Value versus Present Value Computational Tools Basic Patterns of Cash Flow Review Questions 
4.2	Single Amounts 
Future Value of a Single Amount Present Value of a Single Amount 
142 
143 
143 144 146 147 
147 
147 151 
4.4Mixed Streams 160 
Future Value of a Mixed Stream 160 Present Value of a Mixed Stream 162 Review Question 164 
4.5Compounding Interest More Frequently Than Annually 164 
Semiannual Compounding 164 Quarterly Compounding 164 A General Equation for Compounding 
More Frequently Than Annually 165 Using Computational Tools for Compounding 
More Frequently Than Annually 167 Continuous Compounding 168 Nominal and Effective Annual Rates 
of Interest 169 Review Questions 170 
4.6Special Applications of Time Value 170 
Determining Deposits Needed to 
Accumulate a Future Sum 170 Loan Amortization 171 Finding Interest or Growth Rates 174 
Comparing Present Value and Future Value 153 
Review Questions 
4.3	Annuities 
Types of Annuities 
Finding the Future Value of an Ordinary Annuity 
Finding the Present Value of an Ordinary Annuity 
154 
154 
155 156 157 
Finding the Present Value of a Perpetuity 159 Review Questions 160 
xviii CONTENTS 
IN PRACTICE Focus on Practice: New Century Brings Trouble for Subprime Mortgages 174 Finding Interest or Growth Rates 174 Finding an Unknown Number of Periods 176 Review Questions 178 
Summary	178 
Self-Test Problems181 
Chapter 5 Risk and Return 201 
5.1	Risk and Return Fundamentals 202 
Risk Defined 202 Return Defined 202 
IN PRACTICE Focus on Ethics: What about Moral Risk? 204 Risk Aversion 206 Review Questions 206 
5.2	Risk of a Single Asset 206 
Risk Assessment 206 Risk Measurement 208 Review Questions 213 
5.3	Risk of a Portfolio 213 
Correlation 213 Diversification 214 Correlation, Diversification, Risk, and Return 216 
Chapter 6 
Interest Rates and Bond Valuation 243 
6.1	Interest Rates and Required Returns 244 
Interest Rate Fundamentals 244 Term Structure of Interest Rates 246 Risk Premiums: Issuer and 
Issue Characteristics 248 Review Questions 249 
Warm-Up Exercises 
182 
Problems 
183 
Chapter 4 Case: Funding Jill Moran's 
Retirement Annuity 
198 
Spreadsheet Exercise 
199 
Web Exercise 
200 
International Diversification 
216 
Review Questions 
218 
5.4 Risk and Return: The Capital 
Asset Pricing Model (CAPM) 
218 
Types of Risk 
218 
The Model: CAPM 
219 
Review Questions 
225 
Summary 
226 
Self-Test Problems 
228 
Warm-Up Exercises 
229 
Problems 
230 
Chapter 5 Case: Analyzing Risk and Return 
on Chargers Products' Investments 
240 
Spreadsheet Exercise 
242 
Web Exercise 
242 
6.2 Corporate Bonds 
250 
Legal Aspects of Corporate Bonds 
250 
Cost of Bonds to the Issuer 
251 
General Features of a Bond Issue 
252 
Bond Yields 
253 
Bond Prices 
253 
IN PRACTICE Focus on Ethics: Can We Trust 
the Bond Raters? 
254 
Bond Ratings 
254 
Popular Types of Bonds 
255 
International Bond Issues 
255 
Review Questions 
256 
6.3	Valuation Fundamentals 257 
Key Inputs 258 Basic Valuation Model 259 Review Questions 260 
6.4	Bond Valuation 260 
Bond Fundamentals 261 Basic Bond Valuation 261 Bond Value Behavior 263 Yield to Maturity (YTM) 266 Semiannual Interest and Bond Values 268 Review Questions 269 
Chapter 7 Stock Valuation 281 
7.1	Differences between Debt and Equity Capital 282 
Voice in Management 282 Claims on Income and Assets 282 Maturity 283 Tax Treatment 283 Review Question 283 
7.2	Common and Preferred Stock 283 
Common Stock 284 Preferred Stock 287 Issuing Common Stock 289 Interpreting Stock Quotations 293 Review Questions 294 
7.3	Common Stock Valuation 295 
Market Efficiency 295 Basic Common Stock Valuation Equation 297 Free Cash Flow Valuation Model 299 
CONTENTS 
xix 
Summary 
269 
Self-Test Problems 
272 
Warm-Up Exercises 
272 
Problems 
273 
Chapter 6 Case: Evaluating Annie Hegg's 
Proposed Investment in Atilier 
Industries Bonds 
279 
Spreadsheet Exercise 
280 
Web Exercise 
280 
Other Approaches to Common 
Stock Valuation 
302 
IN PRACTICE Focus on Ethics: Psst-Have You 
Heard Any Good Quarterly Earnings Forecasts Lately? 
304 
Review Questions 
304 
7.4 Decision Making and Common 
Stock Value 
305 
Changes in Expected Return 
305 
Changes in Risk 
306 
Combined Effect 
306 
Review Questions 
307 
Summary 
307 
Self-Test Problems 
310 
Warm-Up Exercises 
311 
Problems 
312 
Chapter 7 Case: Assessing the Impact of 
Suarez Manufacturing's Proposed Risky 
Investment on Its Stock Value 
318 
Spreadsheet Exercise 
319 
Web Exercise 
320 
xx CONTENTS 
Part Three 
Long-Term Investment Decisions 321 
Chapter 8 Capital Budgeting Cash Flows 322 
8.1Capital Budgeting Decision Process 323 
Motives for Capital Expenditure 323 Steps in the Process 323 Basic Terminology 325 Review Questions 327 
8.2Relevant Cash Flows 327 
Major Cash Flow Components 327 Expansion versus Replacement Decisions 328 Sunk Costs and Opportunity Costs 328 International Capital Budgeting 
and Long-Term Investments 329 IN PRACTICE Focus on Practice: Changes May Influence Future Investments in China 330 Review Questions 331 
8.3Finding the Initial Investment 331 
Installed Cost of New Asset 331 After-Tax Proceeds from Sale of Old Asset 332 Change in Net Working Capital 334 Calculating the Initial Investment 335 Review Questions 336 
Chapter 9 
Capital Budgeting Techniques: Certainty and Risk 361 
9.1Capital Budgeting Techniques 362 
Bennet Company's Relevant Cash Flows 362 Payback Period 363 Net Present Value (NPV) 367 Internal Rate of Return (IRR) 369 Review Questions 371 
8.4Finding the Operating Cash Inflows 337 
Interpreting the Term After-Tax 337 Interpreting the Term Cash Inflows 337 Interpreting the Term Incremental 340 Review Questions 341 
8.5Finding the Terminal Cash Flow 341 
Proceeds from Sale of Assets 341 Taxes on Sale of Assets 341 Change in Net Working Capital 342 Review Question 343 
8.6Summarizing the Relevant Cash Flows 343 
Review Question 345 Summary 345 Self-Test Problems 346 Warm-Up Exercises 347 Problems 348 Chapter 8 Case: Developing Relevant Cash 
Flows for Clark Upholstery Company's 
Machine Renewal or Replacement 
Decision 357 Spreadsheet Exercise 359 Web Exercise 360 
9.2Comparing NPV and IRR Techniques 372 
Net Present Value Profiles 372 Conflicting Rankings 373 Which Approach Is Better? 374 Review Questions 375 
9.3Additional Considerations: Real Options and Capital Rationing 376 
Recognizing Real Options 376 Choosing Projects under Capital Rationing 378 Review Questions 380 
9.4Behavioral Approaches for Dealing with Risk 380 
Scenario Analysis 381 Decision Trees 382 Simulation 383 International Risk Considerations 384 Review Questions 385 
9.5Risk-Adjusted Discount Rates 385 
Determining Risk-Adjusted Discount 
Rates (RADRs) 385 Applying RADRs 386 IN PRACTICE Focus on Ethics: Environmental Compliance: Honesty Is the Best Policy 387 
CONTENTS xxi 
RADRs in Practice 389 Review Questions 391 Summary 391 Self-Test Problems 393 Warm-Up Exercises 394 Problems 396 Chapter 9 Case: Making Norwich Tool's 
Lathe Investment Decision 409 Spreadsheet Exercise 410 Web Exercise 410 
Part Four Long-Term Financial Decisions 411 
Chapter 10 10.5 Weighted Average Cost The Cost of Capital 412 of Capital 425 
Calculating Weighted Average Cost of 
10.1Overview of the Cost of Capital 413 Capital (WACC) 425 
Some Key Assumptions The Basic Concept Specific Sources of Capital Review Questions 
10.2	Cost of Long-Term Debt 
Net Proceeds Before-Tax Cost of Debt After-Tax Cost of Debt Review Questions 
10.3	Cost of Preferred Stock 
Preferred Stock Dividends Calculating the Cost of Preferred Stock Review Question 
10.4	Cost of Common Stock 
413 Weighting Schemes 426 413 Review Questions 428 415 415 10.6 Marginal Cost and Investment Decisions 428 416 Weighted Marginal Cost of Capital (WMCC) 428 416 IN PRACTICE Focus on Practice: EVAlue Creation 429 416 Investment Opportunities Schedule (IOS) 432 419 Using the WMCC and IOS to Make Financing/Investment Decisions 432 
419 
Review Questions 434 420 Summary 434 420 Self-Test Problem 436 420 Warm-Up Exercises 438 421 
Problems 438 421 Chapter 10 Case: Making Star Products' 
Finding the Cost of Common Stock Equity 421 Financing/Investment Decision 445 Cost of Retained Earnings 423 Spreadsheet Exercise 447 Cost of New Issues of Common Stock 423 Web Exercise 448 Review Questions 425 
xxii CONTENTS 
Chapter 11 Leverage and Capital Structure 449 
11.1Leverage 450 
Breakeven Analysis 451 Operating Leverage 454 IN PRACTICE Focus on Practice: Adobe's Leverage 457 Financial Leverage 458 Total Leverage 461 Review Questions 464 
11.2The Firm's Capital Structure 464 
Types of Capital 464 External Assessment of Capital Structure 465 Capital Structure of Non-U.S. Firms 466 Capital Structure Theory 467 Optimal Capital Structure 470 Review Questions 472 
11.3EBIT-EPS Approach to Capital Structure 472 
Presenting a Financing Plan Graphically 473 Comparing Alternative Capital Structures 474 
Chapter 12 Dividend Policy 493 
12.1Dividend Fundamentals 494 
Cash Dividend Payment Procedures 494 Tax Treatment of Dividends 496 Dividend Reinvestment Plans 496 Review Questions 497 
12.2Relevance of Dividend Policy 497 
Residual Theory of Dividends 497 Arguments for Dividend Irrelevance 499 Arguments for Dividend Relevance 500 Review Questions 501 Considering Risk in EBIT-EPS Analysis 475 Basic Shortcoming of EBIT-EPS Analysis 476 Review Question 477 
11.4Choosing the Optimal Capital Structure 477 
Linkage 477 Estimating Value 478 Maximizing Value versus Maximizing EPS 479 Some Other Important Considerations 479 Review Questions 480 
Summary	481 
Self-Test Problems	482 
Warm-Up Exercises	484 
Problems	484 
Chapter 11 Case: Evaluating Tampa Manufacturing's Capital Structure 491 
Spreadsheet Exercise	492 
Web Exercise	492 
12.3Factors Affecting Dividend Policy 501 
Legal Constraints 501 Contractual Constraints 502 Internal Constraints 502 Growth Prospects 502 Owner Considerations 503 Market Considerations 503 Review Question 504 
12.4Types of Dividend Policies 504 
Constant-Payout-Ratio Dividend Policy 504 Regular Dividend Policy 505 Low-Regular-and-Extra Dividend Policy 506 Review Question 506 
12.5	Other Forms of Dividends 
Stock Dividends Stock Splits Stock Repurchases IN PRACTICE Focus on Ethics: Are Buybacks Really a Bargain? Review Questions 
Summary 
Self-Test Problem 506 
506 508 509 
511 512 512 514 
CONTENTS xxiii 
Warm-Up Exercises 514 Problems 515 Chapter 12 Case: Establishing General 
Access Company's Dividend Policy 
and Initial Dividend 521 Spreadsheet Exercise 522 Web Exercise 522 
Part Five 
Short-Term Financial Decisions 523 
Chapter 13 
Working Capital and Current Assets Management 524 
13.1Net Working Capital Fundamentals 525 
Short-Term Financial Management 525 Net Working Capital 525 The Tradeoff between Profitability and Risk 526 
Review Questions 
13.2	Cash Conversion Cycle 
Calculating the Cash Conversion Cycle 
Funding Requirements of the Cash Conversion Cycle 
Strategies for Managing the Cash Conversion Cycle 
Review Questions 
13.3	Inventory Management 
527 
528 
528 529 532 532 
533 
13.4Accounts Receivable Management 538 
Credit Selection and Standards 538 Credit Terms 543 Credit Monitoring 545 Review Questions 547 
13.5Management of Receipts and Disbursements 548 
Float 548 Speeding Up Collections 548 Slowing Down Payments 549 Cash Concentration 549 IN PRACTICE Focus on Ethics: Stretching Accounts Payable-Is It a Good Policy? 500 Zero-Balance Accounts 551 Investing in Marketable Securities 552 Review Questions 553 
Summary	553 
Self-Test Problems556 
Warm-Up Exercises557 
Problems	558 
Chapter 13 Case: Assessing Roche Publishing Company's Cash Management Efficiency 563 
Spreadsheet Exercise	564 
Web Exercise565 Differing Viewpoints about Inventory Level 533 Common Techniques for Managing 
Inventory 533 International Inventory Management 538 Review Questions 538 
xxiv 
CONTENTS 
Chapter 14 
Current Liabilities 
Management 
566 
14.1 
Spontaneous Liabilities 
567 
Accounts Payable Management 
567 
Accruals 
571 
Review Questions 
572 
14.2 
Unsecured Sources of 
Short-Term Loans 
572 
Bank Loans 
572 
IN PRACTICE Focus on Ethics: Loan Fraud 
573 
Commercial Paper 
578 
International Loans 
579 
Review Questions 
580 
Appendixes 
A Financial Tables A-1 B Solutions to Self-Test Problems B-1 C Answers to Selected End-of-Chapter 
Problems C-1 
Glossary G-1 Index I-1 
14.3	Secured Sources of Short-Term Loans 581 
Characteristics of Secured Short-Term Loans 581 Use of Accounts Receivable as Collateral 582 Use of Inventory as Collateral 584 Review Questions 586 
Summary 586 Self-Test Problem 590 Warm-Up Exercises 590 Problems 591 Chapter 14 Case: Selecting Kanton Company's 
Financing Strategy and Unsecured 
Short-Term Borrowing Arrangement 597 Spreadsheet Exercise 598 Web Exercise 599 
Web Chapter: Financial Markets and Institutions on the book's Companion Website 
www.prenhall.com/gitman 
Web Chapter: International Managerial Finance on the book's Companion Website 
www.prenhall.com/gitman 

Library of Congress Subject Headings for this publication:

Corporations -- Finance.
Business enterprises -- Finance.