What is the best introductory book to corporate finance you know of, for self study purposes?

March 31, 2006 9:10 AM

What is the best introductory book to corporate finance you know of, for self study purposes?

Sort of like corporate finance for dummies . I am looking for a couple of books or softwares that not only can explain things well , but also have plenty of practice exercises and correct step by step solutions , for self study purposes.

If necessary I will also get hold of their instructor's manuals and study guides.

I have talked to some university lecturers and tutors and a couple of websites and received the following suggestions:

Fundamentals of Financial Management (Hardcover)
by Eugene F. Brigham, Joel F. Houston


Fundamentals of Corporate Finance Standard Edition
by Stephen A. Ross, Randolph W Westerfield, Bradford D Jordan


Essentials of Corporate Finance + Self Study CD-ROM + PowerWeb (Hardcover)
by Stephen A. Ross, Randolph W Westerfield, Bradford D Jordan, Bradford Jordan


Please note that I am interested in learning financial concepts that make use of time value of money . e.g. compound interest, present values of loans and investments, the similarities and differences and relationships among annuities, mortgages, and retirement plans .
Introduction to the concept of share valuation, concept of risk and return and application to portfolio theory, pricing of risky securities (CAPM), evaluation of investment proposals, concept of cost of capital, corporate finance policy including capitalstructure and dividend decisions, mergers and takeovers and valuation and application of derivative securities.
Integration of finance theory and spreadsheet techniques. Financial ratios, leverage analysis, cost of capital, financial mathematics, capital budgeting, risk and statistical analysis, portfolio theory, macros and visual basic. Quantifying and programming financial problems.

Thanks a million.

posted by studentguru to Education (12 answers total)

Best answer: Here are the standard texts based on my own experience working as an M&A banker:

Corporate finance: Brealey Meyer's Principles of Corporate Finance

Financial Accounting: Kieso Weygandt's Intermediate Accounting

The two books above are the two textbooks I kept from college and were the two books handed to every new investment banking analyst during the first day of training at the two bulge-bracket banks I've worked for. If you only get one book, I'd get the Kieso Weygandt book.

Other standard texts:
Fixed Income: Fabozzi's Handbook of Fixed Income Securities - if you ever plan to work in fixed income, this is your bible. Even if you don't, it's very useful to own.

Derivatives: Hull's Options, Futures and Other Derivatives

Mergers & Acquisitions: The Art of M&A. The link is to the primary M&A book, but there are other books in series that cover M&A due diligence and structuring. I've found these books to be somewhat useful, but as the title says, M&A is more art than science and the real learning is to be done on the job.

Other books:
I have a photocopy of Higgin's Analysis for Financial Management that I found to be pretty interesting. I wouldn't get this over the Brealey Meyers text, but it does provide some interesting looks at more detailed financial analysis.

This is what I have on my bookshelf at work. I'll try to think of more.
posted by mullacc at 9:32 AM on March 31, 2006 [3 favorites]

What's your goal? Do you want to get a job (in what part of the industry?), become an educated investor, work in academia?
posted by mullacc at 9:37 AM on March 31, 2006

Another great resource is Aswath Damodaran's website. He's a prof at NYU and an author of some solid textbooks. The website has plenty of reading material.
posted by mullacc at 9:40 AM on March 31, 2006

Higgins is the stock CorpFin book at most MBA programs nowadays, but it is almost purely Corporate Finance, and it touches on only some of the themes you mentioned.

Bodie, Kane and Marcus' Investments is a really thick book whose older editions can be had pretty cheaply. While most of the things you list in your question deal with finance from a company perspective, BKM deals with those topics from a market perspective, and is IMO all-encompassing. When I forget the differences between Modified and Macaulay duration, for instance, it's the first place I turn. Fabozzi is more thorough (and deserving of its "bible" status) as mullacc notes, but far narrower.

As far as programming goes, you can solve 99% of financial problems with a Monte Carlo program and Excel (especially if you can use VBA). Best intro book on how to use Excel is by Benninga, who happens to be a fine gentleman.

As far as hardcore Fin Math goes, I'd poke around the Berkeley MFE site, and see what their kids are reading.
posted by Kwantsar at 10:27 AM on March 31, 2006

Response by poster: Thank you very much for your advice so far.

I had attended a couple of classes on corporate finance 15 years ago and I find that I get excited about time value of money. And I would like to explore working on that excitement.

My goal is to learn enough to make my own investment decisions in many kinds of instruments. Or at least can hold a conversation with investment analysts when they work on my money one day :)

Yah , one day, if I live long enough :)

I already have a background in financial accounting and some knowledge of management accounting.

I have no plan to go back to school yet. I will do that only after I have the foundations of financial mathematics under my belt.

But I am keen to learn to learn online and with great introductory books.

The challenge with most corporate finance textbooks is they assume we are all mathematics wizards and given a problem and a solution can derive the step by step process on our own.

Thanks a million.
posted by studentguru at 10:35 AM on March 31, 2006

Response by poster: Is there a website where corporate finance students hang out?
posted by studentguru at 10:41 AM on March 31, 2006

If I were you, I'd get the Brealey Meyers book because it covers some of the high-level financial theory and mentions briefly most types of securities (or maybe the Bode Kane book Kwantsar mentions, but I'm less familiar with that). Then I would get the Higgins book because that will give you the tools you need to analyze a company's financial statements.

The Fabozzi and other more detail books tend to serve more as references when you need to look something up as you're actually doing the real thing than as introductory texts.
posted by mullacc at 10:52 AM on March 31, 2006

studentguru writes "Is there a website where corporate finance students hang out?"

Haha, yeah, they hang out at the Vault.com message boards and talk about which banks pay the highest bonuses and whether or not your should wear a Hermes tie during your first year out of undergrad. Greedy fuckers.
posted by mullacc at 10:57 AM on March 31, 2006 [2 favorites]

Besides Fabozzi, the book on bonds that I'd suggest is Inside the Yield Book by Homer and Leibowitz, for an introduction to bonds/interest rates/time value.
posted by milkrate at 11:46 AM on March 31, 2006 [1 favorite]

Response by poster:
I find that for those people who have some idea about time value of money, start with

(1) chapter 3 of http://pages.stern.nyu.edu/~adamodar/ Corporate Finance: Theory and Practice - 2nd Edition "Time Value of money" pdf

and at the same time,

(2) Read "The Fast Forward MBA in Business Math" (Paperback)
by Peter Garrity
posted by studentguru at 7:06 AM on April 22, 2006 [1 favorite]

Response by poster: I have just discovered this free book written by a Brown University professor --- allegedly free until end of summer 2006:

http://newmarksdoor.typepad.com/mainblog/2005/11/ivo_welchs_text.html#comments

http://welch.econ.brown.edu/book/links.html
posted by studentguru at 12:22 AM on April 28, 2006

Response by poster: Before finish reading "The Fast Forward MBA in Business Math" , try reading the chapter on Risk and Rate of Return in "Fundamentals of Financial Management"
by Eugene F. Brigham, Joel F. Houston about where concepts like standard deviation and variance and normal distribution come in in terms of evaluating two competing potential investments.
posted by studentguru at 9:42 PM on May 7, 2006 [1 favorite]