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Finance in a Nutshell a More Comprehensive “Javier Estrada Delivers the Essential Concepts and Tools of Modern Finance Clearly and Concisely 0273675400_COVER 5/7/05 10:08 am Page 1 FINANCE About the author Javier Estrada holds an M.S. in Finance and a Ph.D. in Economics FINANCE both from the University of Illinois at Urbana-Champaign. He is FINANCE currently an associate professor at the IESE Business School in Barcelona, Spain; the co-editor of the Emerging Markets Review; IN A NUTSHELL and a wealth management advisor at Sports Global Consulting. He IN A NUTSHELL has published extensively in international journals, written many FINANCE cases for class discussion, and lectured throughout the world to This is a no-nonsense companion to working with the undergraduate students, graduate students, and executives. A no-nonsense companion to the tools of finance. tools and techniques of finance Sometimes even the best professionals have long forgotten some key IN A NUTSHELL IN A NUTSHELL financial concepts, and others may never have learned them properly in the first place. Some want to broaden the scope of their financial The author has prepared some useful tools and supporting data knowledge, and many more simply need a desktop companion for sets to help make Finance in a Nutshell a more comprehensive “Javier Estrada delivers the essential concepts and tools of modern finance clearly and concisely. Estrada avoids quick and practical help with the tools and techniques of finance. companion for those who wish to explore these concepts further. abstract symbolism and jargon, and instead relies on insightful, practical examples, making this the perfect book for A no-nonsense companion to the You can find them at: www.pearsoned.co.uk/estrada practitioners who seek an efficient and engaging learning experience. My advice: buy this book and keep it close Whatever your role in the world of finance; student or executive, at hand!” tools and techniques of finance beginner or expert, this book is designed to explain and illustrate the working essentials of finance with clarity and speed. Mark Kritzman, President & CEO, Windham Capital Management, LLC Finance in a Nutshell deliberately combines essential theory with real- “With Finance in a Nutshell, Javier Estrada has succeeded in several difficult tasks: to make an investment and world application, using short, sharp chapters to help you find what corporate finance guide concise and useful; conceptually comprehensive and correct, but also written in a readable you need and focus your attention. That way you can understand fast and engaging style. Academics, as well as practitioners, will want to refer to this book and recommend it to others.” and implement right away. And since spreadsheets have become an Edward I. Altman, Max L. Heine Professor of Finance, NYU Stern School of Business indispensable tool for the business of finance, this book also shows how to implement these techniques in Excel. “Professor Estrada has written a summary of basic financial topics that should appeal to all levels of students and Topics covered include: risk and return, total risk, optimal portfolios, practitioners. It is concise and readable, but still manages to address the key issues in finance in a manner that is both diversification, systematic risk, CAPM and the cost of capital, useful and insightful. As a former academic and current practitioner of finance, I will use this book and recommend it downside risk, risk-adjusted returns, valuation models, bonds, prices to my colleagues.” and yields, default and market risk, duration and convexity, NPV and Jack D. Glen, Lead Portfolio Officer, Corporate Portfolio Management Department, International Finance IRR, real options, corporate value creation, options, futures and Corporation (IFC) forwards, currencies, statistics, normality, regression analysis and many more. “This is a valuable companion for the practising manager and student. In one brief volume we have a succinct presentation of the important tools and concepts of modern finance. The discussion is direct and practical. Estrada is to In every case, real-world examples bring the concept to life, drawing be commended for translating deep economic ideas into terms that are immediately usable, compelling, and valuable.” ESTRADA JAVIER on the experience of companies such as American Express, Apple, Robert F. Bruner, Distinguished Professor of Business Administration, Darden Graduate School of Business Bank of America, Berkshire Hathaway, Boeing, Cisco, Citigroup, Coca- Administration, University of Virginia Cola, Dell, Disney, General Electric, General Motors, Hewlett-Packard, IBM, Intel, Johnson & Johnson, JP Morgan Chase, McDonald’s, Merrill “In exceptionally clear and concise language, Javier Estrada explains the concepts of modern finance. Each chapter is Lynch, Microsoft, Morgan Stanley, Oracle, Pepsi, Sun Microsystems, up-to-date, well-presented and contains useful problem sets. I recommend this book to practitioners and students alike.” Wal-Mart, and Yahoo!, among many others. George Hoguet, CFA, FRM Global Investment Strategist, State Street Global Advisors Investors, business executives and finance professionals, including investment bankers, portfolio managers, brokers and security “This is a compact handbook of the key concepts that we teach in finance. You can dip into any chapter for a quick analysts, should all find this book a valuable aid to getting up to speed briefing or a fast refresher. This is corporate finance served in bite-sized and digestible portions.” on something real and relevant to their work, and MBA students will Elroy Dimson, BGI Professor of Investment Management, London Business School find it a helpful companion to the core concepts of Corporate Finance or Investments courses. If there’s a financial concept that you find hard to understand, easy Visit our website at ––––––––––––––––––––––– to forget or simply necessary to apply with confidence, here it is in Visit our website at FINANCE a nutshell. www.pearson-books.com www.pearson-books.com ––––––––––––––––––––––– ISBN 0-273-67540-0 JAVIER ESTRADA Front Cover Image: An imprint of Pearson Education © Eisenhut & Mayer/Getty 9 780273 675402 NUTS_A01.QXD(corre) 04/02/2006 7:12 AM Page i FINANCE IN A NUTSHELL NUTS_A01.QXD(corre) 04/02/2006 7:13 AM Page ii In an increasingly competitive world, we believe it’s quality of thinking that will give you the edge – an idea that opens new doors, a technique that solves a problem, or an insight that simply makes sense of it all. The more you know, the smarter and faster you can go. That’s why we work with the best minds in business and finance to bring cutting-edge thinking and best learning practice to a global market. Under a range of leading imprints, including Financial Times Prentice Hall, we create world-class print publications and electronic products bringing our readers knowledge, skills and understanding, which can be applied whether studying or at work. To find out more about our business publications, or tell us about the books you’d like to find, you can visit us at www.pearsoned.co.uk NUTS_A01.QXD 17/7/05 11:22 am Page iii CORPORATE FINANCE FINANCE IN A NUTSHELL A no-nonsense companion to the tools and techniques of finance Javier Estrada London • New York • Toronto • Sydney • Tokyo • Singapore Hong Kong • Cape Town • New Delhi • Madrid • Paris • Amsterdam • Munich • Milan NUTS_A01.QXD(corre) 04/02/2006 7:13 AM Page iv PEARSON EDUCATION LIMITED Edinburgh Gate Harlow CM20 2JE Tel: +44 (0)1279 623623 Fax: +44 (0)1279 431059 Website: www.pearsoned.co.uk First published in Great Britain in 2005 © Pearson Education Limited 2005 The right of Javier Estrada to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. ISBN-10: 0-273-67540-0 ISBN-13: 978-0-273-67540-2 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Estrada, Javier. Finance in a nutshell: a no-nonsense companion to the tools and techniques of finance p. cm. — (Corporate finance) Includes index. ISBN 0–273–67540–0 1. Business enterprises—Finance—Handbooks, manuals, etc. 2. Corporations—Finance—Handbooks, manuals, etc. I. Title. II. Corporate finance (Financial Times Prentice Hall) HG4027.3.E88 2005 658.15—dc22 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the Publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, 90 Tottenham Court Road, London W1T 4LP. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior consent of the Publishers. 10 98765432 09 08 07 06 This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the authors nor the publisher is engaged in rendering legal, investing, or any other professional service. If legal advice or other expert assistance is required, the service of a competent professional person should be sought. The publisher and contributors make no representation, express or implied, with regard to the accuracy of the information contained in this book and cannot accept any responsibility or liability for any errors or omissions that it may
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