Preface to the Sixth Edition
Financial Management: Theory and Practice,6/e is designed as a comprehensive reference cum
text book in financial management. This book seeks to:
· Build understanding of the central ideas and theories of modern finance.
· Develop familiarity with the analytical techniques helpful in financial decision making.
· Furnish institutional material relevant for understanding the environment in which
financial decisions are taken.
· Discuss the practice of financial management.
The primary thrust of the book is to show how financial theory can be applied to solve real
and day-to-day problems. An attempt has been made to relate theory to practice. Of course,
the theory presented has its imperfections and inadequacies—which theory does not? Yet,
theory is a potent tool for analysing practical problems.
A Journey of Two Decades
I am gratified with the publication of this edition which coincides with the twentieth anniversary of the book.
The past two decades have witnessed a dramatic transformation of the Indian business and financial sector, thanks to deregulation, liberalisation, partial privatisation, globalisation, automation, and the ascendance of the services sector.
In the wake of these developments, investment and financing avenues have expanded
considerably; competition has intensified in all sectors; institutional investors have become
a major force; financial prices have become more volatile; corporates have grown in size and
complexity; and intangible assets have assumed greater significance.
In response to these opportunities and challenges, shareholder value has become thecentral corporate agenda; mergers, acquisitions, and restructuring have gatheredmomentum; financial derivatives have emerged as tools for risk management; corporategovernance and transparency have received a lot of emphasis; and performancemanagement has become a major concern.
This book, in its various editions, has tried to capture the central themes and evolvingconcerns of corporate financial management. It can justifiably claim to be the mostcontemporary and comprehensive Indian book in the field. This is reflected in its growingpopularity among management students and practitioners.
Changes in the Sixth Edition
Enthused by the overwhelming response to the previous edition of the book and prodded by
the suggestions received from the readers, I have made some structural changes and added
new materials.
Structural Changes To facilitate a more logical flow, the following structural changes have
been made:
- The chapters on 'Analysing Financial Performance', 'Break-even Analysis andLeverages', and 'Financial Planning and Forecasting' have been moved forward.
- The chapters on 'Risk and Return' and 'Risk and Return: Extensions' have beenmerged.
- The chapter on 'Financial Management in Public Sector Enterprises' has beendisbanded. The material of this chapter has been incorporated in other chapters.
New Material The following have been added to enrich the book:
- Two new chapters titled 'Performance Measurement and Balanced Scorecard'(Chapter 36) and 'Financial Management in Intangible-Intensive Companies'(Chapter 38) have been added.
- Ten new sections titled 'The Fundamental Principle of Finance'; 'Going Beyond theNumbers'; 'Concepts in Valuation'; 'Arithmetic Return versus Geometric Return';'Sources and Perspectives on Risk'; 'Managing Risk'; 'Taxonomy of Real Options';'Design of Debt'; 'Strategic Alliances'; and 'Default Swaps' have been added in differentchapters.
- Eight minicases have been added on the topics: 'Analysing Financial Performance';'The Time Value of Money'; 'Estimation of Cash Flows'; 'Risk Analysis and CapitalBudgeting'; 'The Cost of Capital'; 'Credit Management'; 'Corporate Valuation'; and'Mergers, Acquisitions, and Restructuring'.
- A number of boxes containing material on financial practices have been added.
Ancillary Material
To enhance the utility of the book for students and instructors, the following ancillary
materials are available:
- Spreadsheet Templates Dr. V. Nagadevara of Indian Institute of Management,Bangalore developed the spreadsheet templates in Excel. They correlate with variousconcepts in the text and are meant to help students work through financial problems.These spreadsheet templates may be downloaded from
- Solutions Manual The solutions manual contains solutions to end-of-chapterproblems. The solutions can be accessed by instructors who adopt the book. They maycontact Tata McGraw-Hill for assistance in accessing the solutions manual.
Special Features
Designed to provide a firm grounding in the principles, techniques, and practice of financial
management, the book has the following special features:
- Comprehensive coverage It covers a wide spectrum of topics in financialmanagement quite comprehensively. Topics included in the book like, CorporateValuation, Value Based Management, Financial Management in Sick Units, CorporateFinancial Models, and Financial Management in Intangible-Intensive companies arenot covered in most of the books.
- Decisional focus and analytical approach This book primarily seeks to show how awide range of financial decision situations should be analysed. An attempt has beenmade to describe the setting of various decisions, dwell on the quantitative andqualitative considerations relevant for such decisions, and explain analytical methodswhich are helpful in analysing these decisions.
- Numerous illustrations Various concepts, tools, and techniques of financialmanagement have been illustrated with suitable examples. Wherever necessary, twoor three examples of increasing complexity have been provided.
- Discussion of practice In several important areas of financial management likecapital expenditure analysis, cost of capital, risk analysis, credit management, capitalstructure planning, and dividend policy, the practice of business firms has beendescribed and evaluated.
- Procedural orientation Procedural aspects of the terms loan financing, public issueof capital, lease financing, mergers and amalgamations and so on have been discussed.This is meant to give the reader a feel for 'how to go about' in the world of finance.
Organisation and Use of the Text
There are several ways of organising the material presented in this book. Therefore, I have
made the book highly modular. This gives the instructor a great deal of flexibility in
sequencing the material.
I have used this book for a set of two courses, a basic and an advanced course. For the
basic course titled 'Financial Management' or 'Corporate Finance' or 'Managerial Finance', I
have used Parts 1 through 5 and Parts 7 and 8 with the following exceptions: Chapter 10 :
Options and Their Valuation; Chapter 15: Capital Budgeting-Extensions; and Chapter 31 :
Working Capital Management-Extensions.
For the advanced course titled 'Strategic Financial Management' or 'Advanced Financial
Management' or 'Topics in Finance' I have used the rest of the book.
While the book is primarily targeted at students of MBA, CFM, ACA, AICWA, ACS, and
CFA programmes and finance professionals, it will be useful for all managers interested in
understanding the financial dimensions of business.
PRASANNA CHANDRA
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