Wednesday, May 27, 2009

Book review: Principles of corporate finance by R. Brealey, S. Myers and F. Allen

Principles of corporate finance – R. Brealey, S. Myers and F. Allen

This book discusses a wide range of topics relevant to corporations and financing. The book opens by explaining the concepts value and risk and other basic finance principles. From there the topics become progressively complex, from project analysis and net present value calculations, to debt policy and option valuation. Other topics include mergers, agency problems, credit risk, working capital management, etc. The book concludes with an important discussion on the limitations on finance and what we do and do not know.
This book uses a great number of examples and case studies to explain the concepts. Worked examples show step by step how outcomes are determined. Excel files are available on the internet that helps explain the examples. The examples are either real world companies or imaginary companies so the reader can learn how to analyse real life situations.

What I gained from reading this book:
This book really enhanced my understanding of finance within a corporate situation. This was a required textbook for a third year finance unit so I already had a good understanding of basic principles. What I learned was how to apply the basics of finance in complex situations and find optimal solutions.
This book enhanced my understanding of options and different methods to value them. Other benefits I gained included an increased understanding of tax shields to effectively reduce my tax liability and the ability to analyse the difference between leasing and buying to make the best possible decision.
I found this book was easier to understand than my lecturers and I still keep this book as reference for the future. The principles in this book won’t be obsolete in ten years (unlike other university books I have) so even if I forget how to apply a principle, I know I can easily re-learn it.

The book starts off explaining simple finance principles before going into complex issues so those new to finance won’t struggle from the start. The examples and the excel files on the internet made the learning process so much easier. The principles in this book are useful in a wide range of situations, not just for corporations.

Some people may have difficulty with this book, especially if you don’t already have a good understanding of the basics of finance. Some topics are very complicated.

Recommended for: Business and finance students
If you are taking a course in business or finance, you will probably benefit from learning these advanced concepts. If on the other hand you are thinking of starting your own business, having a strong understanding of complex issues raised in this book will definitely put you at an advantage.

Genre: Finance

Overall rating: 7 out of 10 stars

Where to from here:
After reading this book you will probably want to learn specifics on other topics such as taxation or accounting. I haven’t reviewed any of those books so have a search for some on the topics your interested in.

Australians can buy the international edition by clicking the picture below:

Principles of Corporate Finance

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