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In this chapter, we introduce the most commonly used ratios, classified according to four broad categories that are fairly standardized; in particular, we can organize a firm's financial statement information into ratios to examine the firm's profitability, liquidity, operating efficiency, and financial leverage. We start by analyzing the way these ratios are built and how they should be interpreted. Next, we consider some other ratios, based on market data. Finally, we discuss how to realize a comprehensive financial analysis of a firm using these ratios.

We start the chapter by presenting a basic framework of corporate finance. Next, we provide an introduction to the main financial reports: the balance sheet and the income statement. We describe both the primary individual characteristics of each financial report and the interaction between the two statements. This interaction is important as it allows one to get a more complete picture of a company's financial situation and business performance. Finally, we provide some basic measures of return. As a necessary complement, we also introduce the concepts of expected return and cost of capital.

This chapter develops a useful definition and interpretation of working capital. We argue about the limitations of the standard definition, and suggest that by introducing a second, complementary concept, financial needs for operation (FNOs), a more comprehensive understanding of working capital can be achieved. A firm's FNOs are the level of operating investment needed for the company to operate its business. This investment can be financed using working capital and/or short‐term financial debt. Selecting the mix between these two is among the firm's most important strategic business decisions; therefore, the consideration of working capital in isolation will usually lead the manager astray.

This chapter discusses the development of the metro rail system in Bangalore. It discusses the technical, financial, and scheduling aspects of the Bangalore metro proposal, as also its implementation. It focuses on four important stages of project planning — identification, preparation, appraisal, and implementation — and critically appraises the Bangalore metro rail project, drawing important lessons in the process.

In this chapter, we address the question of how a firm should finance its operation. More specifically, the chapter aims to help managers gain a better understanding of the relation between a firm's level of operating activity and working capital. Given that, from a managerial perspective, a certain portion of short‐term operating assets is to be considered long term, firms should select an accurate share of long‐term financing to ensure matching financing maturity to assets' average life. The chapter presents how the optimal financing choice is influenced by seasonality and growth.

This chapter applies some of the techniques presented in earlier chapters in order to make a comprehensive analysis of a project, from the perspective of a bank when it is expected to finance both its term loan and working capital loan requirements. Using the case of a project proposal, received by the manager of a branch of a nationalised bank located in a jute growing area, this chapter illustrates the methods of project appraisal.

Credit analysis is more than just a quantitative exercise because qualitative factors can influence creditor decisions to lend funds. This chapter discusses the importance of balancing the strengths and weaknesses of quantitative characteristics with an analysis of qualitative characteristics. The extension of credit from a lender to a business is a decision that should follow the careful analysis of factors recognized as industry structuring tools. The “five Cs of credit” provide a framework to begin a qualitative assessment of a company, for without context, financial analysis is almost meaningless. A subsequent discussion of business, industry, and economic analysis rounds out the qualitative considerations. The chapter also offers a discussion of the critical role of the credit rating agencies as gatekeepers. Finally, a review of financial statements, metrics, ratio analysis, and firm capital structure provides a broad view of the firm when conducting a financial analysis. The chapter presents a case study to illustrate key principles.

This chapter analyses the case of state-owned financial entities in Peru and argues that their development banking activities have decreased in importance as instruments of public policy since the structural reforms implemented in the early 1990s. Like all other state enterprises, they have since been subject to discriminatory legal regulation. The four state financial companies analysed have objectives and goals that are not integrated with one other, duplicate their efforts, and do not take advantage of the possible synergies to be obtained. Therefore, none of these institutions constitutes an effective state development bank such as exists in other countries.