Presentation of the book
The Vernimmen is the affectionate name of a corporate finance textbook whose initial author was Pierre Vernimmen and which aims to cover the full scope of corporate finance as it is practiced today worldwide.Corporate finance is evolving in an environment that is undergoing irreversible change due to the rise in environmental, social and governance concerns within society. This evolution naturally and durably affects corporate finance, slowly in some aspects, much more rapidly in others.
Rather than devoting a chapter to it, which would run the risk of being a self-righteous ghetto, we have preferred to infuse the whole of this book with these concerns, which seem to us to be as major for corporate finance as was the irruption of financial markets some 40 years ago.
It encompasses products (sustainability-linked bonds or loans, green bonds, etc.), tools (environmental P&L, carboned EPS) and behaviors that appeared and developed recently due to the pressing need for energy transition. As an example, we answer this question: Should we reduce the cost of capital of a project that benefit the planet and is financed by sustainable financial tools at a lower cost than a plain vanilla debt? Our answer, contrary to the classical view which assumes that investing and financing decisions are separated is: Yes. We do think that helping the planet is a duty and this is well worth a departure from financial orthodoxy.
A way of thinking about finance
We are very pleased with the success of the first five editions of the book. It has encouraged us to retain the approach in order to explain corporate finance to students and professionals. There are four key features that distinguish this book from the many other corporate finance textbooks available on the market today:- Our strong belief that financial analysis is part of corporate finance. Pierre Vernimmen, who was a mentor and partner in the practice of corporate finance, understood very early on that a good financial manager must first be able to analyse a company's economic, financial and strategic situation, and then value it, while at the same time mastering the conceptual underpinnings of all financial decisions.
- Corporate Finance is neither a theoretical textbook nor a practical workbook. It is a book in which theory and practice are constantly set off against each other, in the same way as in our daily practice as investors at Monestier Capital, and Natixis, as board members of several listed and unlisted companies, and as a teacher at HEC Paris.
- Emphasis is placed on concepts intended to give you an understanding of situations, rather than on techniques, which tend to shift and change over time. We confess to believing that the former will still be valid in 20 years’ time, whereas the latter will, for the most part, be long forgotten!
- Financial concepts are international, but they are much easier to grasp when they are set in a familiar context. We have tried to give examples and statistics from all around the world to illustrate the concepts.
The five sections
This book starts with an introductory chapter reiterating the idea that corporate financiers are the bridge between the economy and the realm of finance. Increasingly, they must play the role of marketing managers and negotiators. Their products are financial securities that represent rights to the firm's cash flows. Their customers are bankers and investors. A good financial manager listens to customers and sells them good products at high prices. A good financial manager always thinks in terms of value rather than costs or earnings.Section I goes over the basics of financial analysis, i.e. understanding the company based on a detailed analysis of its financial statements. We are amazed at the extent to which large numbers of investors neglect this approach during stock-market euphoria. When share prices everywhere are rising, why stick to a rigorous approach? For one thing, to avoid being caught in the crash that inevitably follows.
The return to reason has also returned financial analysis to its rightful place as a cornerstone of economic decision-making. To perform financial analysis, you must first understand the firm's basic financial mechanics (Chapters 2–5). Next you must master the basic techniques of accounting, including accounting principles, consolidation techniques and certain complexities (Chapters 6 and 7), based on international (IFRS) standards now mandatory in over 140 countries, including the EU (for listed companies), Australia, South Africa and accepted by the SEC for US listing. In order to make things easier for the newcomer to finance, we have structured the presentation of financial analysis itself around its guiding principle: in the long run, a company can survive only if it is solvent and creates value for its shareholders. To do so, it must generate wealth (Chapters 9 and 10), invest (Chapter 11), finance its investments (Chapter 12) and generate a sufficient return (¬Chapter 13). The illustrative financial analysis of the Italian appliance manufacturer Indesit will guide you throughout this section of the book.
Section II reviews the basic theoretical knowledge you will need to make an assessment of the value of the firm. Here again, the emphasis is on reasoning, which in many cases will become automatic (Chapters 15–19): efficient capital markets, the time value of money, the price of risk, volatility, arbitrage, return, portfolio theory, present value and future value, market risk, beta, etc. Then we review the major types of financial securities: equity, debt and options, for the purposes of valuation, along with the techniques for issuing and placing them (Chapters 20–25).
Section III is devoted to value, to its theoretical foundations and to its computation. Value is the focus of any financier, both its measure and the way it is shared. Over the medium term, creating value is, most of the time, the first aim of managers (Chapters 26–31).
In Section IV, “Corporate financial policies”, we analyse each financial decision in terms of:
- value in the context of the theory of efficient capital markets;
- balance of power between owners and managers, shareholders and debtholders (agency theory);
- communication (signal theory);
- and irrationality (behavioural finance)
In this section, we draw your attention to today's obsession with earnings per share, return on equity and other measures whose underlying basis we have a tendency to forget and which may, in some cases, be only distantly related to value creation. We have devoted considerable space to the use of options (as a technique or a type of reasoning) in each financial decision (Chapters 32–39).
When you start reading Section V, “Financial management”, you will be ready to examine and take the remaining decisions: how to create and finance a start-up, how to organise a company's equity capital and its governance, buying and selling companies, mergers, demergers, LBOs, bankruptcy and restructuring (Chapters 40–48). Lastly, this section presents working capital management, cash management, the management of the firm's financial risks and its operational real-estate assets (Chapters 49–52).
Last but not least, the epilogue addresses the question of the links between finance and strategy.
Suggestions for the reader
To make sure that you get the most out of your book, each chapter ends with a summary and a series of problems and questions (over 800 with the solutions provided). We've used the last page of the book to provide a crib sheet (the nearly 1000 pages of this book summarised on one page!). For those interested in exploring the topics in greater depth, there is an end-of-chapter bibliography and suggestions for further reading, covering fundamental research papers, articles in the press, published books and websites. A large number of graphs and tables (over 100!) have been included in the body of the text and these can be used for comparative analyses. Finally, there is a fully comprehensive index.An Internet site with huge and diversified content
www.vernimmen.com provides free access to tools (formulas, tables, statistics, lexicons, glossaries), resources that supplement the book (articles, prospectuses of financial transactions, financial figures for over 16 000 European, North American and emerging countries, listed companies, thesis topics, thematic links, a list of must-have books for your bookshelf, an Excel file providing detailed solutions to all of the problems set in the book), plus problems, case studies and quizzes for testing and improving your knowledge. There is a letterbox for your questions to the authors (we reply within 72 hours, unless, of course, you manage to stump us!). There are questions and answers and much more. The site has its own internal search engine, and new services are added regularly.A teachers’ area provides teachers with free access to case studies, slides and an Instructor's Manual, which gives advice and ideas on how to teach all of the topics discussed in the book.
A free monthly newsletter on corporate finance
Since we can't bring out a new edition of this book every month, we have set up the Vernimmen.com Newsletter, which is sent out free of charge to subscribers via the web. It contains:- A conceptual look at a topical corporate finance problem (e.g. accounting for operating and capital leases, financially managing during a deflation phase) .
- Statistics and tables that you are likely to find useful in the day-to-day practice of corporate finance (e.g. corporate income tax rates, debt ratios in LBOs) .
- A critical review of a financial research paper with a concrete dimension (e.g. The real effect of corporate cash, why don't US issuers demand European fees for their IPOs?) .
- A question left on the vernimmen.com site by a visitor plus a response (e.g. Why do successful groups have such a low debt level? What is an assimilation clause?) .
And lastly a Facebook page
We publish daily comments on financial news that we deem to be of interest, answer questions from web users and publish finance- and business-related quotes. These could come in useful when preparing for a job interview or serve as food for thought for those of you wanting to take time out and think about what's going on in the corporate and financial world.What the users say
"I discovered finance with ‘The Vernimmen' about 30 years ago. Since then the different versions have accompanied me throughout my career and throughout the world. Not only was the alignment of the successive editions looking good in my different offices but I must confess I have opened and cherished each of them. Whether an investment banker, a CFO in a universal bank or more simply a world banker…"
Bertrand Badre,
Former Managing Director and CFO of the World Bank
"What sets the Vernimmen apart from other textbooks is its integration of practice and current affairs in a rigorous theoretical framework. Recipes and pontification are replaced by a scientific approach. And, thanks to the Newsletter, this is done practically in real time!"
Christophe Evers,
Professor of Finance at the Solvay Brussels School,
Executive Director of Texaf
"I always use the paper edition of the Vernimmen, which is clear and comprehensive, as a reference tool. The site is well designed, always up-to-date and also extremely useful for explaining financial concepts simply and intelligently to non-financial colleagues."
Laurence Debroux,
Member of the Executive Board / CFO of Heineken
"Corporate Finance is a very useful reference book for students and practitioners, it will help both to understand the principles of the financial markets and their practical application in today's complex environment. The book's approach is both logical and sequential and presents some interesting cases that make study easier and more stimulating."
Gabriele Galateri,
Chairman of Generali, former chairman of Telecom Italia and Mediobanca,
former CEO of FIAT
"Vernimmen provided people like me who were new to the world corporate finance a perfect mix of theory and practical examples to help them develop long lasting financial concepts. The book is a written manual for finance, explaining the fundamentals in a very thought provoking way, making it intriguing to delve into the complexities. This book is a must have in your personal library as you will refer back to it even after years."
Sharat Gangwani,
Head of Research Systems at Citadel LLC
The "Vernimmen" is the perfect reference corporate finance book. I used it in my classes, looked back into it during my internships, use it again now to deep dive into corporate finance for my thesis and know I will keep interacting with it later in my career.
André Geha,
Graduate Student at MIT Sloan
"Vernimmen's Corporate Finance is an outstanding clear and complete manual, a wonderful merger of practice and theory. Its coverage of the market aspects of corporate finance distinguishes its content, but its treatment of all the material makes it essential reading for the student, financier or industrialist."
Howard Jones,
Senior Research Fellow in Finance at Saïd Business School,
University of Oxford
"The Vernimmen: proof that an outstanding teaching approach and genuine accessibility are fully compatible with comprehensive and sharp analyses."
Christian Mulliez,
Executive Vice-President and Chief Financial Officer L'Oréal
"The book itself covers all the important techniques that a financial manager must have in his repertoire of tools. The exposition is clear and concise and, most importantly, relies on commonsense reasoning throughout. This is not a book with obscure formulae, yet is still rigorous and at the same time a model of clarity."
Richard Roll,
Joel Fried Professor of Applied Finance at UCLA Anderson
"I opened my first Vernimmen in 1982. After having spent just a few weekends reading it, I felt better equipped for my role in financial management at Paribas. Now at Apax, the Vernimmen remains my companion in my search for value creation (key in the private equity industry)."
Monique Cohen,
Associated Director, Apax Partners
"The book, newsletter, and website are all very interesting and useful. The book is 47 chapters (about 1 000 pages) full of corporate finance. I have to agree with the authors: "It is a book in which theory and practice are constantly set off against each other …" I really like it. Especially the emphasis not so much on techniques ("which tend to shift and change over time"). Very well done ! Moreover, the authors also put out a monthly newsletter and have a web site that could stand alone as one of the best in the business. Check it out !"
Jim Mahar,
Associate Professor of Finance at St. Bonaventure University
As a Mexican-born, French-educated, German-based portfolio manager, I've worked and invested in several European countries. The multi-country content of the "Corporate Finance: Theory and Practice" book makes it my preferred companion as I work in a cross-border environment. Its international focus is the perfect complement to my multicultural experience.
Sergio Macias,
Senior Portfolio Manager Global Equities
This book was for sure the first Finance book I read as a student in my twenties.
I read it again in my thirties to review some of the key Finance challenges I was facing in my professional life and I am now, in my forties, reviewing it another time to compare the reality I have to face now in Asia, with the most advanced financial concepts. I have never been disappointed and have always been able to find the appropriate answer to my questions, as well as food for thought…
Vernimmen is not another book on Finance: this is Finance as a life experiment.
Jean-Michel Moutin,
COO, LVMH Perfumes and Cosmetics
This corporate finance textbook makes the difference. It is an outstanding and unique blend of the theory and the practice, European flavour and world perspective, and traditional topics and emerging themes. Above all, the book is an excellent manual for teachers, students, and corporate managers.
Bang Dang Nguyen,
Lecturer of Finance,
Judge Business School University of Cambridge
As a business student, I appreciated this book for being both exhaustive with almost 1,000 pages and easy to digest. The strengths of this book are its conversational writing style and emphasis on practical problem solving. For example, the four-stage framework for financial analysis presented here is a simple yet rigorous tool to understand a company's financial situation. Plus the authors make theory come alive with the use of concrete examples with real companies.
This book was a fine introduction to corporate finance and continues to be a useful reference for me.
Hock Kim Teh,
Independent consultant, Singapore
"The understanding of Corporate Finance is a key issue to successfully manage a company. From a banker's point of view, a good understanding of Corporate Finance is crucial to assist a company.
The "Vernimmen", written for Europeans by Europeans is a most useful reference for the student as well as the practitioner. The style of the book is concise, yet every conceivable aspect of Corporate Finance is covered.
Complemented by an exhaustive website containing summaries of key concepts, of formulae, and of financial statements of a wide range of companies, the "Vernimmen" is a must."
Michael Rockinger,
Professor of Finance,
Director of the Institute of Banking and Finance, HEC+FAME, University of Lausanne
"This book efficiently bridges financial theory and practice, and encapsulates everything a corporate finance banker will ever need to know and understand. It is
obvious that the authors are passionate about finance, and their enthusiasm is contagious. Written in an easy and accessible style, this book deserves to become a reference work."
Jan Zarzycki,
Head of European Sales at SC Lowy
"This book is unique - one of the ultimate study and reference guides for European financiers from students to CFOs.
The French-language versions of the "Vernimmen" have been for me one of the most helpful and trusted companions throughout my professional career."
Dan Arendt,
Member of the Management Board and Senior Advisory Partner at Castik Capital
"I 'm glad to learn that Vernimenn unique Book on finance is now available for english-reading speakers. I have known this excellent book for many years, which all professionals can easily use when they need to go back to the basics of modern corporate finance. Smartly written, thorough, lively, regularly updated. I strongly recommend it to every one: from the beginner in Finance to high level experts. Learning with Vernimmen is a real pleasure."
Antoine Giscard d'Estaing,
CFO of Casino
"This book is particularly useful for those people who look for the bridge between strategic, operational and investment decisions, on one hand, and financial accounts, on the other hand. Authors' approach, which consists of guiding the reader from financial accounting to most complex deals that have strategic implications for firms, is new and very useful. I would recommend this book to those who want to succeed in in-house and external consulting world as well as in the corporate finance area."
Stephan Dertnig,
Investor and business coach
"Written in a fluent and readable style and supplemented by numerous real-world examples, "Corporate Finance: Theory and Practice" has served as an excellent aid to my studies of finance. The book's broad content has been indispensable in acquiring a better understanding of all the core areas of finance, ranging from the basics of financial analysis through to the workings of complex M&A transactions and cutting edge financial products."
Geoffrey Coombs,
Former Oxford University student and now investment officer with Proparco
"Corporate finance is a lively subject that changes from day to day and evolves regularly, depending on new market developments. The Vernimmen is a true bible of corporate finance. With regular updates through their monthly newsletter and upgrades, the authors have made it applicable to any place, any time. This is pretty unique in the field."
Mehdi Sethom,
Founder
Mediterranean Corporate Finance
