CHAPTER ONE

SETTING THE SCENE

1.1 Introduction

1.2 Value and Wealth

1.3 Owners, Managers and Other Stakeholders

1.4 Business Objectives

1.5 Shareholder Wealth Maximisation

1.6 The Stakeholder Approach

1.7 A Little Historical Background

1.8 The Vodaphone/Mannesman Case ¿ a Seminal Event?

1.9 2000-2 Stock Market Slump and Corporate Scandals

1.10 The Focus of Finance ¿ the Big Three Issues

1.11 Outline of the Book and How to Use It

CASE STUDY: CADBURY-SCHWEPPES PLC

CHAPTER 2

THE MEANING OF SHAREHOLDER VALUE

2.1 Introduction

2.2 The Touchstone of Success ¿ The Pursuit of Shareholder Value

2.3 The Meaning of the NPV

2.4 The Twin Determinants of Value

2.5 The Efficient Markets Hypothesis (EMH)

2.6 Internal Constraints on Value Maximisation ¿ Agency Issues

2.7 Words of warning

2.8 Summary

CHAPTER 3

STRATEGIC MANAGEMENT FOR VALUE CREATION

3.1 Introduction

3.2 Levels of Strategy

3.3 Core Competences

3.4 How Core competences Add Value

3.5 Core Competences as a Basis or Strategy

3.6 Divestment - a return to Core Competence?

3.7 Selecting the markets in which to exploit core competences

3.8 Protecting Core Competence

3.9 Overview of the Key Ideas in Strategic Management

3.10 Summary

CASE STUDY: THE QUAKER STORY

CHAPTER 4

PROJECT APPRAISAL I: THE BASICS

4.1 Introduction

4.2 The role of strategy

4.3 The ingredients of an investment appraisal

4.4. Non-discounting methods

4.5 Discounting methods/discounted cash flow (DCF)

4.6 Worked example

4.7 Problems with DCF methods

4.8 Assessment of the methods

4.9 Summary

CHAPTER 5

PROJECT APPRAISAL II: THE TRICKY BITS

5.1 Introduction

5.2 Allowing for inflation in project appraisal

5.3 Allowing for taxation in DCF

5.4 Risk and uncertainty in project appraisal

5.5 Expected NPVs and probabilities

5.6 Sensitivity analysis

5.7 Worked Example; Bowman plc

5.8 Guarding against Project Risk

5.9 Summary

CASE STUDY: VIRGIN¿S WEST COAST RAILWAY PROJECT

CHAPTER 6

THE RATE OF RETURN REQUIRED BY OWNERS

6.1 Introduction

6.2 The Dividend Valuation Model (DVM)

6.3 The Capital Asset Pricing Model (CAPM)

6.4 International Diversification

6.5 The Risk of Individual Securities

6.6 The Core of the CAPM: Security Market Line (SML)

6.7 Application - Finding the Required Return

6.8 Tailoring the Beta Value for New Projects of Varying Risks

6.9 Worked Example

6.10 The Equity Premium in Practice

6.11 Summary

CHAPTER 7

Working capital management

7.1 Introduction

7.2 What is Working capital?

7.3 Investment in cash

7.4 Investment in Stock

7.5 Investment in debtors

7.6 "Investment" in creditors

7.7 The cash conversion cycle

7.8 Putting it together ¿ strategic working capital management

7.9 Overtrading

7.10 Worked example: Ewden plc

7.11 Summary

CASE STUDY: SODEXHO PLC

CHAPTER 8

RAISING LONG TERM FINANCE

8.1 Introduction

8.2 The Strategic issues

8.3 Equity Financing

8.4 Borrowing

8.5 Borrowing and the Gearing Phenomenon

8.6 Types of Long-Term Debt

8.7 Hybrids

8.8 Worked Example: Bardsey plc

8.9 Summary

CHAPTER 9

THE REQUIRED RETURN ON INVESTMENT

9.1 Introduction

9.2 The cost of debt

9.3 The required rate of return when equity and debt are combined

9.4 Worked example

9.5 Gearing and company value

9.6 Is there an optimal gearing ratio?

9.7 Summary

CHAPTER 10

HOW TO VALUE COMPANIES

10.1 Introduction

10.2 The value of quoted companies

10.3 Valuing unquoted companies

10.4 The (net) asset value (NAV) method

10.5 The Price:earnings ratio (PER) method

10.6 The discounted cash flow (DCF) approach

10.7 Using value drivers - shareholder value analysis

10.8 Worked example 1: Safa plc- ungeared version

10.9 Worked example 2: valuing a geared version of Safa

10.10 Summary

CASE STUDY: EASYJET PLC

CHAPTER 11

RETURNING VALUE TO OWNERS

11.1 Introduction

11.2 Theories of dividend policy: overview

11.3 Dividends as a residual: dividend irrelevance

11.4 Evaluation of the irrelevance argument: alternative views

11.5 Alternatives to cash dividends

11.6 Personal taxation

11.7Dividend policy: key determinants

11.8 Dealing with cash surpluses: special dividends and share buy-backs

11.9 Summary

CHAPTER 12

MANAGING RISK

12.1 Introduction

12.2 What is risk, and how is it managed?

12.3 Integrated risk management

12.4 How risk management can add value

12.5 The importance of communication

12.6 Exchange rate risk and interest rate risk

12.8 Managing Exchange Rate Risk

12.9 Managing Interest rate Risk

12.10 Choosing which hedging techniques to use

12.11 Managing the future

12.12 Summary

CHAPTER 13

MEASURING PERFORMANCE

13.1 Introduction

13.2 Problems with profit-Based measures of Performance

13.3 The Value-Action Pentagon

13.4 SVA Again

13.5 Measuring value creation: TSR, MVA, EVA

13.6 The Calculation of EVA: South African Breweries (SAB)

13.7 The Advantages of EVA

1. The Challenge of EVA
2. Some Problems with EVA

13.9 A Broader Perspective; The Balanced Scorecard

13.9 Summary

CASE STUDY: KLM ROYAL DUTCH AIRLINES