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This book attempts to deal with financing and investment decision making, with particular
focus on the private sector of the UK economy. Its approach is to set out the theories
that surround each area of financial decision making and relate these to what
appears to happen in practice. Where theory and practice diverge, the book tries to
reconcile and explain the differences. It also attempts to assess the practical usefulness
of some of the theories that do not seem to be applied widely in practice.
Although the focus of the book is on the UK private sector, the theories and practices
examined are, for the main part, equally valid in the context of the private sector
of all the world’s countries. Also, much of the content of the book is relevant to many
parts of the public sector, both in the UK and overseas.
Most of the organisations to which the subject matter of this book relates will be
limited companies or groups of companies, though some may be partnerships, cooperatives
or other forms. For simplicity, the word ‘business’ has been used as a general
term for a business entity, reference being made to specific legal forms only where the
issue under discussion relates specifically to a particular form.
The book attempts to make the subject as accessible as possible to readers coming
to business finance for the first time. Unnecessarily technical language has been
avoided as much as possible, and the issues are described in a narrative form as well
as in more formal statements. The more technical terms are highlighted in blue when
they are first mentioned and these are included in the glossary at the end of the book.
Detailed proofs of theoretical propositions have generally been placed in appendices
to the relevant chapters. Readers should not take this to mean that these proofs are
particularly difficult to follow. The objective was to make the book as readable as possible,
and it was felt that sometimes formal proofs can disturb the flow if they are
included in the main body of the text.
Although the topics in the book are interrelated, the book has been divided into sections.
Chapters 1 to 3 are concerned with setting the scene, Chapters 4 to 7 with investment
decisions, and Chapters 8 to 12 with financing decision areas, leaving Chapters
13 to 16 to deal with hybrid matters.
Some reviewers have made the point that the subject of Chapter 9 (capital market
efficiency) pervades all aspects of business finance and should, therefore, be dealt with
in an introductory chapter. After some consideration it was decided to retain the same
chapter order as in the previous editions. The logic for this is that a complete understanding
of capital market efficiency requires knowledge that does not appear until
Chapter 8. A very brief introduction to capital market efficiency appears at the beginning
of Chapter 7, which is the first chapter in which capital market efficiency needs
to be specifically referred to. It is felt that the chapter ordering provides a reasonable
compromise and one that makes life as straightforward as possible for the reader. |
