Corporate Finance

Pierre Vernimmen (deceased) was a founding member and the first Coordinator of the Finance Department at HEC Paris. From 1973 to his death in 1996, he worked at Paribas as a private equity investor and, subsequently, led its mergers and acquisition teams. Pascal Quiry holds the BNP Paribas Chair in Finance at HEC Paris. After 23 years as an M&A banker, he founded an investment fund that invests in startups and unlisted SMEs. He is also an active investor in several listed companies. Yann Le Fur is a former Affiliated Professor at HEC Paris and is the head of the corporate finance group for Natixis in New York. He is also an active investor in several unlisted companies.

Preface viii

Frequently used symbols xii

1 Towards A Green, Responsible and Sustainable Corporate Finance 1

Section I Financial Analysis 17

Part One Fundamental Concepts In Financial Analysis 19

2 Cash Flow 21

3 Earnings 31

4 Capital Employed and Invested Capital 46

5 Walking Through From Earnings To Cash Flow 58

6 Getting To Grips With Consolidated Accounts 72

7 How To Cope With The Most Complex Points In Financial Accounts 90

Part Two Financial Analysis and Forecasting 117

8 How To Perform A Financial Analysis 119

9 Margin Analysis: Structure 144

10 Margin Analysis: Risks 167

11 Working Capital and Capital Expenditures 182

12 Financing 203

13 Return On Capital Employed and Return On Equity 219

14 Conclusion of Financial Analysis 238

Section II Investors and Markets 245

Part One Investment Decision Rules 247

15 The Financial Markets 249

16 The Time Value of Money and Net Present Value 270

17 The Internal Rate of Return 286

Part Two The Risk of Securities and The Required Rate of Return 299

18 Risk and Return 301

19 The Required Rate of Return 329

Part Three Financial Securities 347

20 Bonds 349

21 Other Debt Products 370

22 Shares 386

23 Options 406

24 Hybrid Securities 427

25 Selling Securities 445

Section III Value 469

26 Value and Corporate Finance 471

27 Measuring Value Creation 491

28 Investment Criteria 509

29 The Cost of Capital 525

30 Risk and Investment Analysis 542

31 Valuation Techniques 557

Section IV Corporate Financial Policies 589

Part One Capital Structure Policies 591

32 Capital Structure and The Theory of Perfect Capital Markets 593

33 Capital Structure, Taxes and Organisation Theories 605

34 Debt, Equity and Options Theory 621

35 Working Out Details: The Design of The Capital Structure 639

Part Two Equity Capital 659

36 Returning Cash To Shareholders 661

37 Distribution In Practice: Dividends and Share Buy-Backs 678

38 Share Issues 696

Part Three Debt Capital 709

39 Implementing A Debt Policy 711

Section V Financial Management 729

Part One Corporate Governance and Financial Engineering 731

40 Setting Up A Company and Financing Start-Ups 733

41 Shareholders 754

42 Choosing A Corporate Structure 779

43 Corporate Governance 795

44 Initial Public Offerings (IPOS) 807

45 Taking Control of A Company 819

46 Mergers and Demergers 842

47 Leveraged Buyouts (LBOS) 860

48 Bankruptcy and Restructuring 876

Part Two Managing Working Capital, Cash Flows, Financial Risks and Real Estate 889

49 Managing Working Capital 891

50 Cash Management 903

51 Managing Financial Risks 922

52 Managing Operational Real Estate 946

Epilogue – Finance and Strategy 958

Top 20 Largest Listed Companies 965

Contents 973

Index 983