Fundamentals of Financial Management, Concise Edition 9th Edition

Book Preface

When the first edition of Fundamentals was published 38 years ago, we wanted to provide an introductory text that students would find interesting and easy to understand. Fundamentals immediately became the leading undergraduate finance text, and it has maintained that position ever since. However, over the years as Fundamentals got larger and larger, we heard more and more often that it was difficult to cover the entire book in a single term. These concerns led us to create Fundamentals of Financial Management Concise 21 years ago. When designing Concise, we had in mind those instructors who wanted to retain Fundamentals’ depth and level but eliminate some less essential topics. As is the case with Fundamentals, our continuing goal is to produce a book and ancillary package that sets a new standard for finance textbooks.

Finance is an exciting and continually changing field. Since the last edition, many important changes have occurred within the global financial environment. In the midst of this changing environment, it is certainly an interesting time to be a finance student. In this latest edition, we highlight and analyze the events leading to these changes from a financial perspective. Although the financial environment is ever changing, the tried-and-true principles that the book has emphasized for nearly four decades are now more important than ever.

Structure of the Book

Our target audience is a student taking his or her first, and perhaps only, finance course. Some of these students will decide to major in finance and go on to take courses in investments, money and capital markets, and advanced corporate finance. Others will choose marketing, management, or some other nonfinance business major. Still others will major in areas other than business and take finance plus a few other business courses to gain information that will help them in law, real estate, or other fields.

Our challenge has been to provide a book that serves all of these audiences well. We concluded that we should focus on the core principles of finance, including the basic topics of time value of money, risk analysis, and valuation. Moreover, we concluded that we should address these topics from two points of view: (1) that of an investor who is seeking to make intelligent investment choices and (2) that of a business manager trying to maximize the value of his or her firm’s stock. Both investors and managers need to understand the same set of principles, so the core topics are important to students regardless of what they choose to do after they finish the course.

In planning the book’s structure, we first listed the core topics in finance that are important to virtually everyone. Included were an overview of financial markets, methods used to estimate the cash flows that determine asset values, the time value of money, the determinants of interest rates, the basics of risk analysis, and the basics of bond and stock valuation procedures. We cover these core topics in the first nine chapters. Next, because most students in the course will probably work for a business firm, we want to show them how the core ideas are implemented in practice. Therefore, we go on to discuss cost of capital, capital budgeting, capital structure, dividend policy, working capital management, financial forecasting, and international operations.

Nonfinance majors sometimes wonder why they need to learn finance. As we have structured the book, it quickly becomes obvious to everyone why they need to understand time value, risk, markets, and valuation. Virtually all students enrolled in the basic course expect at some point to have money to invest, and they quickly realize that the knowledge gained from Chapters 1 through 9 will help them make better investment decisions. Moreover, students who plan to go into the business world soon realize that their own success requires that their firms be successful, and the topics covered in Chapters 10 through 17 will be helpful here. For example, good capital budgeting decisions require accurate forecasts from people in sales, marketing, production, and human resources, and nonfinancial people need to understand how their actions affect the firm’s profits and future performance.