Corporate finance for dummies taillard, michael

Corporate
Finance
FOR

DUMmIES

‰



Corporate
Finance
FOR

DUMmIES

‰

by Michael Taillard, PhD, MBA


Corporate Finance For Dummies®
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About the Author
Michael Taillard’s other works include Economics and Modern
Warfare (published by Palgrave Macmillan), and 101 Things
Everyone Should Know About the Global Economy (published by
Adams Media). After spending several years as a university economics instructor at several locations in the United States and
China, Mike decided to leave and become a freelance research
experimentalist. Mike’s work so far includes economic research
projects for The American Red Cross, a theoretical study for
the United States Strategic Command (STRATCOM), and awardwinning research through a private school and tutoring company designed as a philanthropic experiment in macroeconomic
cash flows as a form of urban renewal. Mike has also appeared
in documentaries such as Dead Man Working. Mike received his
PhD of financial economics and has an academic background that
includes a master’s degree in international finance with a dual
concentration in international management, as well as a bachelor’s
degree in international economics.



Dedication
This book is dedicated to my family back in Michigan.


Publisher’s Acknowledgments

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Contents at a Glance
Introduction................................................................. 1
Part I: What’s Unique about Corporate Finance............... 7
Chapter 1: Introducing Corporate Finance...................................................................... 9
Chapter 2: Navigating the World of Corporate Finance............................................... 17
Chapter 3: Raising Money for Business Purposes........................................................ 35

Part II: Reading Financial Statements as a
Second Language........................................................ 43
Chapter 4: Proving Worth Using the Balance Sheet..................................................... 45
Chapter 5: Getting Paid with the Income Statement.................................................... 57
Chapter 6: Easy Come, Easy Go: Statement of Cash Flows.......................................... 65
Chapter 7: Making Financial Statements Useful with Metrics Analysis..................... 73
Chapter 8: Measuring Financial Well-Being with Special Use Metrics....................... 95

Part III: Valuations on the Price Tags of Business....... 111
Chapter 9: Determining Present and Future Values: Time Is Money....................... 113
Chapter 10: Bringing in the CAValry for Capital Asset Valuations........................... 121
Chapter 11: Bringing on Your Best Bond Bets............................................................ 137
Chapter 12: Being Savvy When Shopping for Stock................................................... 153

Chapter 13: Measuring Valuations of the Might-Be: Derivatives.............................. 169

Part IV: A Wonderland of Risk Management............... 181
Chapter 14: Managing the Risky Business of Corporate Finances........................... 183
Chapter 15: Through the Looking Glass of Modern Portfolio Theory..................... 193
Chapter 16: Financially Engineering Yourself Deeper Down the Rabbit Hole........ 211
Chapter 17: Assessing Capital Structure Is WACC...................................................... 227

Part V: Financial Management.................................. 235
Chapter 18: Assessing Financial Performance............................................................ 237
Chapter 19: Forecasting Finances Is Way Easier than the Weather......................... 257
Chapter 20: The 411 on M&A......................................................................................... 271


Part VI: The Part of Tens........................................... 289
Chapter 21: Ten Things You Need to Know about International Finance............... 291
Chapter 22: Ten Things You Need to Understand about Behavioral Finance........ 305

Index....................................................................... 317


Table of Contents
Introduction.................................................................. 1
About This Book............................................................................................... 1
Conventions Used in This Book...................................................................... 2
Foolish Assumptions........................................................................................ 2
How This Book Is Organized........................................................................... 3
Part I: What’s Unique about Corporate Finance................................. 3
Part II: Reading Financial Statements as a Second Language............ 4
Part III: Valuations on the Price Tags of Business.............................. 4

Part IV: A Wonderland of Risk Management....................................... 4
Part V: Financial Management............................................................... 4
Part VI: The Part of Tens........................................................................ 4
Icons Used in This Book.................................................................................. 5
Where to Go from Here.................................................................................... 5

Part I: What’s Unique about Corporate Finance............... 7
Chapter 1: Introducing Corporate Finance . . . . . . . . . . . . . . . . . . . . . . . . 9
Corporate Finance and the Role of Money in the World........................... 10
Identifying What Makes Corporate Finance Unique................................... 12
Serving as an intermediary.................................................................. 12
Analyzing interactions between people............................................. 13
Recognizing How Corporate Finance Rules Your Life............................... 14
Becoming Proactive About Corporate Finance.......................................... 15

Chapter 2: Navigating the World of Corporate Finance . . . . . . . . . . . . 17
Visiting the Main Attractions in Finance Land............................................ 17
Corporations......................................................................................... 18
Depository institutions........................................................................ 19
Insurance companies........................................................................... 20
Securities firms..................................................................................... 22
Underwriters......................................................................................... 23
Funds...................................................................................................... 24
Financing institutions........................................................................... 25
Exchanges.............................................................................................. 27
Regulatory bodies................................................................................. 27
Federal Reserve and U.S. Treasury..................................................... 28


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Corporate Finance For Dummies
Meeting the People of Finance Land............................................................ 30
Entry-level positions............................................................................. 30
Analysts.................................................................................................. 31
Auditors................................................................................................. 31
Adjusters................................................................................................ 31
Executives and managers.................................................................... 31
Traders................................................................................................... 32
Treasurers............................................................................................. 32
Other related positions........................................................................ 32
Visiting the Finance Land Information Booth............................................. 33
Internet sources.................................................................................... 33
Print sources......................................................................................... 34
Human sources..................................................................................... 34

Chapter 3: Raising Money for Business Purposes . . . . . . . . . . . . . . . . 35
Raising Capital................................................................................................ 35
Raising Money by Acquiring Debt................................................................ 36
Asking the right people for money..................................................... 37
Making sure the loan pays off in the long run................................... 38
Looking at loan terms........................................................................... 39
Raising Cash by Selling Equity...................................................................... 40
Selling stock to the public................................................................... 40
Looking at the different types of stock.............................................. 41

Part II: Reading Financial Statements as
a Second Language...................................................... 43
Chapter 4: Proving Worth Using the Balance Sheet . . . . . . . . . . . . . . . 45
Introducing the Balance Sheet...................................................................... 45

Evaluating the Weights on the Balance Scale............................................. 46
Assets............................................................................................................... 46
Current assets....................................................................................... 47
Long-term assets................................................................................... 48
Intangible assets................................................................................... 51
Other assets........................................................................................... 51
Liabilities......................................................................................................... 51
Current liabilities.................................................................................. 52
Long-term liabilities.............................................................................. 53
Owners’ Equity................................................................................................ 54
Preferred shares................................................................................... 54
Common shares.................................................................................... 55
Treasury shares.................................................................................... 55
Additional paid-in capital..................................................................... 55
Retained earnings................................................................................. 55
Accumulated other comprehensive income..................................... 56
Making Use of the Balance Sheet.................................................................. 56


Table of Contents
Chapter 5: Getting Paid with the Income Statement . . . . . . . . . . . . . . 57
Adding Income and Subtracting Costs: What’s on
the Income Statement................................................................................ 57
Gross profit............................................................................................ 58
Operating income................................................................................. 60
Earnings before interest and taxes..................................................... 61
Net income............................................................................................. 62
Earnings per share................................................................................ 63
Supplemental notes.............................................................................. 63
Putting the Income Statement to Good Use................................................ 64

Chapter 6: Easy Come, Easy Go: Statement of Cash Flows . . . . . . . . . 65
Piecing Together a Puzzle of Cash Flows.................................................... 65
Operating activities cash flows........................................................... 66
Investing activities cash flows............................................................ 67
Financing activities cash flows............................................................ 68
Combining the three types of operations to get
the net change in cash...................................................................... 70
Using the Statement of Cash Flows.............................................................. 70

Chapter 7: Making Financial Statements Useful
with Metrics Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Being Able to Pay the Bills: Using Liquidity Metrics.................................. 74
Days sales in receivables..................................................................... 74
Accounts receivables turnover........................................................... 75
Accounts receivables turnover in days............................................. 75
Days sales in inventory........................................................................ 76
Inventory turnover............................................................................... 77
Inventory turnover in days.................................................................. 77
Operating cycle..................................................................................... 78
Working capital..................................................................................... 78
Current ratio.......................................................................................... 79
Acid test ratio (aka: Quick Ratio)....................................................... 80
Cash ratio............................................................................................... 80
Sales to working capital....................................................................... 81
Operating cash flows to current maturities...................................... 82
Measuring Profit Generation and Management with
Profitability Metrics.................................................................................... 82
Net profit margin................................................................................... 83
Total asset turnover............................................................................. 83

Return on assets................................................................................... 84
Operating income margin.................................................................... 85
Operating asset turnover..................................................................... 85
Return on operating assets................................................................. 86
Return on total equity.......................................................................... 86
Return on common equity................................................................... 87
DuPont equation................................................................................... 87

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Fixed asset turnover............................................................................. 88
Return on investment........................................................................... 89
Gross profit margin............................................................................... 90
Evaluating a Company’s Debt Management with Debt Analytics............. 90
Times interest earned.......................................................................... 91
Fixed charge coverage......................................................................... 91
Debt ratio............................................................................................... 92
Debt to equity ratio.............................................................................. 92
Debt to tangible net worth................................................................... 93
Operating cash flows to total debt..................................................... 94
Equity multiplier................................................................................... 94

Chapter 8: Measuring Financial Well-Being with
Special Use Metrics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Focusing on Earnings and Dividends with Analytics for Investors.......... 96
Financial leverage................................................................................. 96

Earnings per common share............................................................... 97
Operating cash flows per share.......................................................... 97
Price to earnings ratio.......................................................................... 98
Percentage of earnings retained......................................................... 99
Dividend payout.................................................................................. 100
Dividend yield..................................................................................... 100
Book value per share.......................................................................... 101
Cash dividend coverage ratio........................................................... 102
Generating Earnings from Interest: Analytics for Banks......................... 102
Earning assets to total assets ratio.................................................. 103
Net interest margin............................................................................. 103
Loan loss coverage ratio.................................................................... 104
Equity to total assets ratio................................................................ 105
Deposits times capital........................................................................ 105
Loans to deposits ratio...................................................................... 106
Using Analytics to Measure Operating Asset Management.................... 107
Operating ratio.................................................................................... 107
Percent earned on operating property............................................ 108
Operating revenue to operating property ratio.............................. 108
Long-term debt to operating property ratio................................... 109

Part III: Valuations on the Price Tags of Business........ 111
Chapter 9: Determining Present and Future Values: Time Is Money . . . 113
Losing Value over Time............................................................................... 114
Inflation................................................................................................ 114
Interest rates....................................................................................... 115


Table of Contents
Predicting Future Value............................................................................... 116

Simple interest.................................................................................... 116
Compound interest............................................................................. 117
Calculating the Present Value..................................................................... 117
Taking a closer look at earnings....................................................... 118
Discounted cash flows....................................................................... 119

Chapter 10: Bringing in the CAValry for Capital Asset Valuations . . . 121
Just What Is Capital Budgeting?................................................................. 121
Rating Your Returns..................................................................................... 122
Looking at costs.................................................................................. 123
Calculating revenue............................................................................ 124
Calculating the accounting rate of return........................................ 124
Making the most of the internal rate of return
through modification...................................................................... 125
Netting Present Values................................................................................. 127
Calculating NPV over time................................................................. 128
Managing the project’s value............................................................ 128
Determining the Payback Period................................................................ 129
Managing Capital Allocations...................................................................... 130
Calculating the equivalent annual cost............................................ 130
Considering liquid assets................................................................... 131
Looking at a Piece of Project Management............................................... 133
Value schedule metrics...................................................................... 133
Budget metrics.................................................................................... 134

Chapter 11: Bringing on Your Best Bond Bets . . . . . . . . . . . . . . . . . . . 137
Exploring the Different Types of Bonds..................................................... 137
Considering corporate bonds........................................................... 138
Gauging government bonds.............................................................. 138
No more clipping with coupon bonds.............................................. 141

Forgoing periodic payments with zero-coupon bonds.................. 141
Sizing up asset-backed securities..................................................... 141
Having the best of two worlds with convertible bonds................. 142
Using callable bonds to capitalize on interest rates...................... 143
Looking at the pros and cons of puttable bonds............................ 143
Getting the gist of registered bonds................................................. 144
Being in the know about bearer bonds............................................ 144
Counting on forgiveness with catastrophe bonds.......................... 144
Understanding junk bonds................................................................ 145
Looking at Bond Rates................................................................................. 145
Reading Bond Information........................................................................... 147
Understanding Bond Valuation................................................................... 150

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Chapter 12: Being Savvy When Shopping for Stock . . . . . . . . . . . . . . 153
Exchanging Stocks........................................................................................ 154
Looking at the Different Types of Orders.................................................. 154
Market order........................................................................................ 156
Stop and limit orders.......................................................................... 156
Pegged order....................................................................................... 157
Time-contingent order....................................................................... 157
Comparing Long and Short Stocks............................................................. 157
Buying long.......................................................................................... 158
Buying on margin................................................................................ 158
Selling short......................................................................................... 159

Defining Chips, Caps, and Sectors.............................................................. 160
Chips..................................................................................................... 160
Caps...................................................................................................... 161
Sectors.................................................................................................. 162
Knowing Where the Market Stands: The Bulls versus the Bears........... 162
Watching Stock Indices................................................................................ 163
Calculating the Value of Stocks.................................................................. 164
Surveying equity valuation models.................................................. 164
Checking out corporate analysis...................................................... 165
Evaluating industry performance..................................................... 166
Factoring in stock market fluctuations............................................ 166
Considering macroeconomics.......................................................... 167

Chapter 13: Measuring Valuations of the Might-Be: Derivatives . . . 169
Introducing the Derivatives Market........................................................... 169
Buying or Selling — Then Again, Maybe Not: Options............................ 170
Risk management................................................................................ 171
Revenue generation............................................................................ 171
Valuation.............................................................................................. 172
Customizing the Contract with Forwards................................................. 173
Risk management................................................................................ 173
Revenue generation............................................................................ 174
Valuation.............................................................................................. 174
Adding Some Standardization to the Contract with Futures.................. 175
Risk management................................................................................ 175
Revenue generation............................................................................ 176
Valuation.............................................................................................. 176
Exchanging This for That and Maybe This Again: Swaps........................ 177
Risk management................................................................................ 177
Revenue generation............................................................................ 178

Valuation.............................................................................................. 179


Table of Contents

Part IV: A Wonderland of Risk Management................ 181
Chapter 14: Managing the Risky Business of Corporate Finances . . . 183
Understanding that Risk Is Unavoidable................................................... 183
Considering Interest Rate Risk and Inflation Risk.................................... 184
Minimizing Market Risk............................................................................... 185
Evaluating the Risk of Extending Credit.................................................... 186
Understanding Off-Balance-Sheet Risk....................................................... 187
Factoring in Foreign Exchange Risk........................................................... 188
Transaction risk.................................................................................. 188
Translation risk................................................................................... 189
Other foreign exchange risk.............................................................. 190
Identifying Operating Risk........................................................................... 191
Looking at Liquidity Risk............................................................................. 192

Chapter 15: Through the Looking Glass of Modern Portfolio Theory . . 193
Delving into Portfolio Basics....................................................................... 194
Surveying portfolio management strategies................................... 194
Looking at modern portfolio theory................................................. 195
Understanding passive versus active management....................... 195
Hypothesizing an Efficient Market.............................................................. 196
Risking Returns............................................................................................. 197
Looking at the trade-off between risk and return........................... 198
Diversifying to maximize returns and minimize risk...................... 199
Considering risk aversion.................................................................. 200
Measuring risk..................................................................................... 203

Optimizing Portfolio Risk............................................................................. 207

Chapter 16: Financially Engineering Yourself
Deeper Down the Rabbit Hole . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211
Creating New Tools through Financial Engineering................................. 212
Making Securities Out of Just about Anything.......................................... 212
You can securitize everything........................................................... 213
Slicing securities into tranches......................................................... 214
Looking at Hybrid Finances......................................................................... 214
The mixed-interest class of hybrids................................................. 215
Single asset class hybrids.................................................................. 216
Indexed-back CDs............................................................................... 216
Bundling Assets............................................................................................ 217
Pass-through certificates................................................................... 217
Multi-asset bundles............................................................................ 218
Unbundling.......................................................................................... 218

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Appealing to a Large Market with Exotic Finances.................................. 219
Options................................................................................................. 220
Swaps contracts.................................................................................. 220
Loans.................................................................................................... 220
Engineering Finances................................................................................... 221
Moving into Computational Finance.......................................................... 223
Changing the face of trading............................................................. 224

Offering online banking...................................................................... 225
Looking at logic programming.......................................................... 225

Chapter 17: Assessing Capital Structure Is WACC . . . . . . . . . . . . . . . 227
Making More Money than You Borrow...................................................... 227
Calculating the Cost of Capital.................................................................... 228
Measuring cost of capital the WACC way........................................ 228
Factoring in the cost of debt............................................................. 229
Looking at the cost of equity............................................................. 230
Dividend policy................................................................................... 230
Choosing the Proper Capital Structure..................................................... 233

Part V: Financial Management................................... 235
Chapter 18: Assessing Financial Performance . . . . . . . . . . . . . . . . . . 237
Analyzing Financial Success........................................................................ 237
Using Common-Size Comparisons.............................................................. 238
Vertical common-size comparisons................................................. 239
Horizontal common-size comparisons............................................ 240
Cross comparisons............................................................................. 241
Performing Comparatives............................................................................ 243
Over time............................................................................................. 243
Against industry.................................................................................. 245
Determining the Quality of Earnings.......................................................... 247
Accounting concerns.......................................................................... 247
Sources of cash flows......................................................................... 250
Assessing Investment Performance........................................................... 251
Conventional evaluations.................................................................. 252
Portfolio manager evaluations.......................................................... 254

Chapter 19: Forecasting Finances Is Way Easier than the Weather . . . 257

Seeing with Eyes Analytical......................................................................... 257
Collecting data.................................................................................... 258
Finding an average.............................................................................. 259
Distribution.......................................................................................... 260
Probability........................................................................................... 262


Table of Contents
Viewing the Past as New.............................................................................. 264
Finding trends and patterns.............................................................. 264
Looking at regression......................................................................... 265
Seeing the Future Unclouded: Forecasting................................................ 268
Using statistics and probability........................................................ 268
Reference class forecasting............................................................... 270
Evaluating forecast performance...................................................... 270

Chapter 20: The 411 on M&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
Getting the Real Scoop on M&A.................................................................. 272
Differentiating Between the M and the A................................................... 273
Mergers................................................................................................ 273
Acquisitions......................................................................................... 275
Buyouts................................................................................................ 276
Other forms of integration/cooperation.......................................... 277
Recognizing a Divestiture............................................................................ 278
Identifying Motives for M&A....................................................................... 279
Diversification..................................................................................... 279
Geographic expansion........................................................................ 280
Economies of scale............................................................................. 280
Economies of scope............................................................................ 281
Vertical integration............................................................................. 281

Horizontal integration........................................................................ 282
Conglomerate integration.................................................................. 282
Elimination of competitors................................................................ 283
Manager compensation...................................................................... 283
Synergistic sperations........................................................................ 283
Measuring What a Business is Worth to You............................................ 284
Financing M&A.............................................................................................. 287

Part VI: The Part of Tens............................................ 289
Chapter 21: Ten Things You Need to Know
about International Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
There’s No Such Thing as a Trade Imbalance.......................................... 291
Purchasing Power Isn’t the Same Thing as Exchange Rate..................... 293
Eurobonds Aren’t Necessarily from Europe............................................. 294
Interest Rates and Exchange Rates Have a Muddled Relationship........ 295
Spot Rate Isn’t the Only Type of Currency Transaction.......................... 296
Diversification Can’t Completely Eliminate Risk Exposure..................... 297
Cross-Listing Allows Companies to Tap the World’s Resources............ 298
Outsourcing Is a Taxing Issue..................................................................... 300
Politics Complicate Your Life...................................................................... 301
Cultural Understanding Is Vital.................................................................. 303

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Chapter 22: Ten Things You Need to Understand
about Behavioral Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 305

Making Financial Decisions Is Rarely Entirely Rational........................... 306
Making Sound Financial Decisions Involves
Identifying Logical Fallacies.................................................................... 306
Getting Emotional about Financial Decisions Can Leave You Crying...... 308
Financial Stampeding Can Get You Trampled.......................................... 308
Letting Relationships Influence Finances Can Be Ruinous...................... 309
Satisficing Can Optimize Your Time and Energy...................................... 310
Prospect Theory Explains Life in the Improbable.................................... 311
People Are Subject to Behavioral Biases................................................... 312
Analyzing and Presenting Information Can Be an Erroneous Process..... 313
Measuring Irrationality in Finance Is Rational Behavioral Finance........ 315

Index........................................................................ 317


Introduction

I

n case you couldn’t already tell, this book is about corporate finance. If
you were looking for poodle grooming, you picked up the wrong book. Go
try again.
Corporate finance is the study of how groups of people work together as a
single organization to provide something of value to society. If a corporation is using up more value than it’s producing, it will lose money and fail. So
it’s the job of those in corporate finance to manage the organization so that
resources are efficiently utilized, the most valuable projects are pursued, and
the corporation can remain competitive and everyone gets to keep his job.
You can do this task through a very easy process: measuring! In corporate
finance, you measure value using money, and the final goal of a corporation
is to make money. Why? When a corporation makes money — that is, when

it’s profitable — that means it’s making sales that have more value than the
things it buys; it’s adding value to society rather than sucking the world dry.
Ensuring that a corporation is financially successful is far more complicated
than simply ensuring that a corporation is profitable, though. Throughout
this book, I discuss a wide range of topics in corporate finance. This is an
introductory book, after all, so think of it as a sampler or a greatest-hits
album — it’s everything you need in order to understand what corporate
finance is and how to begin functioning on a basic level in the world of
finance.

About This Book
This book is a little different from other corporate finance books. First of
all, it’s better. More useful than that, though, is that this book is written and
organized so that people with absolutely no understanding of corporate
finance can use it as a reference guide. It’s also a wonderfully interesting
read.
Everything in this book is written as if you’re a complete newbie. The little
details are pointed out, and when stuff gets too complicated, I just summarize
the topic. I also explain — or at least clarify — everything, in normal everyday language, without trying to sound very technical. This book is all about


2

Corporate Finance For Dummies
making the subject of corporate finance accessible to everyone, while also
trying to keep it from being too dry. Corporate finance books can be really
boring, which is sad because they don’t need to be.
This book is organized to be utilized as a reference book. I still recommend
reading it all the way through, of course, but everything is broken down and
organized carefully to give the book completely disjointed continuity. That

organization makes it easy for you to look things up without reading the
entire book, while maintaining enough fluid continuity to make sense if you
want to read the book from start to finish.

Conventions Used in This Book
To enhance your reading experience, I use the following conventions
throughout this book:
✓
I use monofont for websites. Note: When this book was printed, some
web addresses may have needed to break across two lines of text. If
that happened, rest assured that no extra characters (such as hyphens)
have been put in to indicate the break. So, when using one of these web
addresses, just type exactly what you see in this book, pretending as
though the line break doesn’t exist.
✓
New terms are in italics, with an easy-to-understand definition provided
nearby.
✓
Bold is used to highlight key words and phrases in bulleted and numbered lists.
✓
In math equations, variables are italicized to set them apart from letters.

Foolish Assumptions
While writing this book, I’ve done my best to assume that you, the reader,
know absolutely nothing. That being said, no one is perfect. That’s okay,
though; I forgive you for failing to live up to the expectation that you should
really be a complete dummy. In return, I would appreciate it if you would forgive me for the assumptions that are made throughout this book. What I can
do for you, though, is give you a heads up regarding some things you should
be aware of, know, or perhaps prepare yourself with.
First, this book is a bit heavy on the math. Yes, I know, math is hard. I never

liked it, either. That’s why the majority of the math is supplemented with an


Introduction
explanation of how to do the calculations that’s simple enough to spare you
from needing to know how to actually read math. In other words, you can
skip over the majority of the equations and just read the paragraph(s) following them to get an understanding of what you’re supposed to do. That’s not
always the case, though. To understand this book — to understand corporate
finance at all — you really need a basic understanding of arithmetic (addition, subtraction, multiplication, division) as well as algebra (how to find x). I
talk quite a bit about statistics and calculus in this book as well, but I provide
you with careful, step-by-step instructions or simple summarizations for that.
I don’t talk about anything that’s very hard. As long as you know arithmetic
and a little algebra, you’ll be fine — nothing harder than 4 + x = 10.
You can also supplement the information in this book by checking out For
Dummies books on accounting. The two subjects have a bit of overlap, and
I do bring up accounting subjects occasionally in this book. Looking to
Accounting For Dummies by John A. Tracy (Wiley), for example, can help give
you more detail about these topics. I really tried to only include those details
relevant to the subject of corporate finance.
Other than that, if you’re reading this right now, then you’re prepared to
begin reading Corporate Finance For Dummies!

How This Book Is Organized
Like all For Dummies books, this one is organized into several parts. This
structure groups together different chapters that are already loosely linked
by nature of having similar topics. It’s just an organization thing intended to
make this book easier to read, understand, and reference.
Here’s a brief description of all the parts in this book and what you can find
in them. For additional detail about the contents of this book, refer to the
table of contents.

Part I: What’s Unique about
Corporate Finance
This part is pretty much what you’d expect from an introduction in any other
book, except better. This part talks a lot about what money is, what corporate finance is and the role it plays, and the people and organizations that utilize corporate financial information (Hint: That includes everyone, whether
you realize it or not).

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