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

Synopsis:
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.

Positives:
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.

Negatives:
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:

Book review: Rich Dad Poor Dad by Robert Kiyosaki

Rich Dad Poor Dad – Robert Kiyosaki

Synopsis:
The basis of this book is comparing the advice poor and middle class parents give their children to the advice rich parents give their children. The advice from the poor and middle class parents is along the lines of ‘go to school, get good grades and get a secure job’. The author suggests another path and shows why the conventional advice of getting a ‘secure job’ may not be good advice anymore.
The author uses his childhood experiences and compares advice he received from his real dad (his ‘poor dad’) and his friend’s dad (his ‘rich dad’).

What I gained from reading this book:
I am a Bachelor of Commerce graduate with majors in Finance, Economics and Commercial Law. Before I read this book I had already graduated and studied finance for quite some time. Throughout my finance studies my instincts always bothered me. Almost every finance lecture, I understood what the person was saying, but I knew that something was amiss with their advice. As soon as I started reading this book everything clicked. The author was discussing many of the same issues that bothered me. The number one point that bothered me like nothing else was that almost 100% of the financial planning students I talked to had never invested anything during their studies. The author of the book makes a similar point that ‘Wall street is the only place where people drive up in Rolls-Royces to get advice from people who take the subway’. It concerns me that many financial planning graduates who will eventually become financial planners and advise other people have never invested on their own.

This book was an eye-opener for me and it will be for many people. Even with my financial studies behind me, I have gained some valuable investing advice that my lecturers never discussed. I have kept in mind the concepts this book discusses and I believe it has positively impacted my investment returns more so than the advice from my third year ‘advanced investment’ units. Because of this book I was able to understand why much of the advice given by my finance lecturers is obsolete.

Positives:
Can open your mind to a different way of making a living other than the conventional 9-5 job. If you apply the way of thinking to your life you may find improvements in your finances.
It gives good explanations of simple situations and how they relate to income statements and balance sheets. This is great for people who know nothing about accounting. Teaches the basic principles of cash flow and why you should understand it.

Negatives:
I have read some negative reviews for this book* saying the advice it offers is dangerous. If you have no financial education and follow exactly what this book says, then yes it is dangerous (just like any financial advice). The author mentions many times that you must improve your financial education and I recommend the same. You shouldn’t buy a stock on a ‘hot tip’ without proper education or research, so don’t follow this advice without doing some extra research into personal finance.
Some people may not like this book because it doesn’t show ‘step-by-step’ instructions how to get rich. If you read this book looking for a formula to follow to get rich, you will be disappointed. Instead, read it with an open mind and consider the principles when you make financial decisions in the future.
There are some things written in this book that many people will not like to hear. For example: the author explains why a person’s house is not an asset. Try not to take offense with anything like this and understand why he says it.
These points aren’t really negatives because I don’t really have any negative things to say about this book. These points are warnings for people who could potentially be disappointed by certain aspects of the book. If you understand that this book is not a ‘formula to get rich’ and you keep an open mind to the concepts explained, you should find great value.

Recommended for: Everybody
I recommend this book for everybody because the concepts are so valuable once you properly understand them. Have a read of this book and continue improving your financial education by reading other books. Too many people neglect their personal finances and wonder why they struggle. By reading this book it can open your eyes to why people get stuck in financial problems and how to avoid them.
I found so much value in this book that I made sure every member of my family read it.

Genre: Personal finance

Overall rating: 8 out of 10 stars

Australians can buy the book by clicking the picture below

* There is a very popular negative review by John T. Reed that criticises every point the author makes and tries to explain why the book is terrible advice. It made me wonder why somebody would put so much effort into demolishing the book and its advice. Eventually I realised that the person did this to sell his own books (he has over 30) which he has links to on the same page. I wouldn’t take anything that person says seriously when you consider his main motive: ‘criticise the competition to sell my own books’.

Where to from here:
If you are interested in reading other books by Robert Kiyosaki, I have reviewed other ones here:
Cashflow Quadrant
Retire Young Retire Rich
Why we want you to be rich by Robert Kiyosaki and Donald Trump

On the other hand, you may want to consider reading books looking at ways millionaires become rich:
The millionaire next door by Thomas Stanley and William Danko
Ten roads to riches by Ken Fisher