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Financial management
Book Reviews
157
principles and techniques for successful management and have left us with the view that Boards of Directors are not that important or that mergers and acquisitions will not involve us. The current U.K. business climate has meant that many managers have had to learn quickly that their careers can be heavily influenced by both. Heinemann
first published William F. Coventry’s
Management Made Simple in 1970 and the text was
revised a decade later by John L. Barker. The book is targeted towards students on a whole host of British sub-A-level courses, professional courses and degrees as well as to young executives and the general reader. I am always sceptical about publisher’s claims for such a widespread audience but the book has been sufficiently popular to warrant seven editions. Heinemann’s Made Simple series, in which the book is located, is a mass production formula which adopts a ‘practical approach’ dealing ‘systematically with essential background and techniques’ to 86 titles including: Acting and Stagecraft, British Constitution, Cookery, Geology, Joumalism, Philosophy, Russian and Woodwork. Any book entitled Management Made Simple is bound to attract both those who are uninformed on the subject seeking simple solutions and those who are experts, who know that there are no simple solutions and who want this confirmed. The 16 chapters contain many of the old friends of management texts: Marketing, Personnel, Finance, Objectives, Leadership and Committees. Interestingly, Coventry and Barker also include a chapter on Boards of Directors and one on Mergers and Acquisitions which invariably are excluded from equivalent texts. With these two chapters alone the book has introduced important topics for understanding management. It is surprising that we have had generations of general management texts which have purported to provide tools, concepts,
Financial Management by Stephen Cooper, Macdonald & Evans, 1985, U5.95
Whilst until recently most teachers of financial management tended to rely on mainly American texts, several British books have been published in recent years. The reviewer is pleased to welcome this new volume not only because it adds to our modest stock of British books on the subject but also because it is authoritative, competent and written in a clear, unpretentious manner.
The content of the book sadly strays into the simplistic. Including the summary and suggested further reading at the end of each of the 16 chapters, the 273 pages of text is divided into 409 sections. The section on Women in Management for example, is about 100 words long, consequently the book is open to the charge of being a mile wide but barely an inch deep. Other features of the book which are useful to know are that it is about managing businesses and that it has nothing to say specifically about public sector management. It is also written for the British market only. Importantly, this is one of those books which is a general text on management in so far as it does not refer to any specific industries or any specific businesses. It is committed to the view that management is an activity, a practice, a set of skills and techniques which are distinct from and uninfluenced by the kinds of organisations which are managed. The message from the authors is know this book and you can manage any business organisation. For we who have a commitment to a specific industry, such as hospitality, and who are concerned with hospitality management, this thinking is an anathema, It is an article of faith for us that the kind of business and industry we are in exerts a powerful force on the way it must be managed. Thus, to be a reader of this journal and to feel a need for this book, is a contradiction, Paul Slattery
Department of Catering Studies Hudder~~eld ~~lyte~~~~~
Stephen Cooper’s Financial Management is a general text and does not deal directly or indirectly with the specific problems of financial management in the hotel industry or tourism. It is, nevertheless, a volume which will be of interest both to senior accountants in our industry and, to some extent, persons hoping to qualify for the new examinations of the British Association of Hotel Accountants. Chapters which will be particularly useful to the latter are those dealing with investment appraisal, replacement decisions, leasing and working capital management. The book is well structured, thorough and comprehensive, and therefore any of the criticisms
158
which follow should not be assumed to detract from its undoubted value as a serious contribution to the professional literature on financial management. It is hoped that the author will note the observations listed below in order to make appropriate adjustments in subsequent editions of the book. In Chapter 2 the author is not correct when he states that the IRR and NPV methods pre-suppose reinvestment of cash inflows at the relevant rate, because no reinvestment assumption is, in fact, necessary. The IRR/NPV of a project should remain the same irrespective of what is done with inflowing funds. Chapter 10 deals with dividend policy. A significant omission here is a discussion of the ‘quaint’ rules of many institutions (trusts, pension funds, etc.) both in this country and the U.S.A., which disallow investments in shares if no dividend is paid. This factor should always be borne in mind when decisions on dividend policy are made. In Chapter 17 on working capital management the author states that ‘the rule of thumb for the current ratio is usually given as 2: l’, also, he suggests that the rule of thumb for the quick ratio is 1: 1. This clearly is an oversimplification; and it is a pity that no examples are given of typical current and quick ratios from a few selected industries, as differences from one industry to another are in this respect quite substantial. Thus most hotels/hotel companies will have a current ratio of approximately 1: 1. Wholesalers and mail order businesses will probably regard a current ratio of 5 : 1 as quite reasonable. The section on international finance (Chapter 20) is weak. In particular some reference to the
Book Reviews
4-way equivalence model of forward and spot rates, inflation and interest rates would have been useful, as would some discussion of the relative inefficiency of the foreign exchange markets which is consequent to the intervention of the central banks. Furthermore, discussion of the types of foreign exchange risk (transaction, translation, economic), and of which of them require hedging against in particular, would have been welcome. The strongest criticism, however, relates to the section on acquisitions and mergers in Chapter 19. In contrast to the author, the reviewer does not consider that diversificationperse justifies mergers, not only because shareholders do not require managers to form unit trusts for them but principally because wealth is not being created. Indeed, the prime and driving principle of mergers, the creation of wealth, is very much underplayed. Yet more erroneously, the author suggests that eps increases may be a justifiable objective in the pursuit of merger policy. This is not quite correct as any merger acquired for cash, not equity, would then be justifiable, whether fl per share or 3300 per share were offered. Eps objectives are never justifiable and, invariably, simply represent financial illusions. Financial Management is intended primarily for students studying for professional accounting examinations. It will certainly be found useful by more advanced university students on various postgraduate courses - particularly MBA programmes -who will find in the volume a complete and comprehensive treatment of the subject.
Richard Kotas Schiller International University
157
principles and techniques for successful management and have left us with the view that Boards of Directors are not that important or that mergers and acquisitions will not involve us. The current U.K. business climate has meant that many managers have had to learn quickly that their careers can be heavily influenced by both. Heinemann
first published William F. Coventry’s
Management Made Simple in 1970 and the text was
revised a decade later by John L. Barker. The book is targeted towards students on a whole host of British sub-A-level courses, professional courses and degrees as well as to young executives and the general reader. I am always sceptical about publisher’s claims for such a widespread audience but the book has been sufficiently popular to warrant seven editions. Heinemann’s Made Simple series, in which the book is located, is a mass production formula which adopts a ‘practical approach’ dealing ‘systematically with essential background and techniques’ to 86 titles including: Acting and Stagecraft, British Constitution, Cookery, Geology, Joumalism, Philosophy, Russian and Woodwork. Any book entitled Management Made Simple is bound to attract both those who are uninformed on the subject seeking simple solutions and those who are experts, who know that there are no simple solutions and who want this confirmed. The 16 chapters contain many of the old friends of management texts: Marketing, Personnel, Finance, Objectives, Leadership and Committees. Interestingly, Coventry and Barker also include a chapter on Boards of Directors and one on Mergers and Acquisitions which invariably are excluded from equivalent texts. With these two chapters alone the book has introduced important topics for understanding management. It is surprising that we have had generations of general management texts which have purported to provide tools, concepts,
Financial Management by Stephen Cooper, Macdonald & Evans, 1985, U5.95
Whilst until recently most teachers of financial management tended to rely on mainly American texts, several British books have been published in recent years. The reviewer is pleased to welcome this new volume not only because it adds to our modest stock of British books on the subject but also because it is authoritative, competent and written in a clear, unpretentious manner.
The content of the book sadly strays into the simplistic. Including the summary and suggested further reading at the end of each of the 16 chapters, the 273 pages of text is divided into 409 sections. The section on Women in Management for example, is about 100 words long, consequently the book is open to the charge of being a mile wide but barely an inch deep. Other features of the book which are useful to know are that it is about managing businesses and that it has nothing to say specifically about public sector management. It is also written for the British market only. Importantly, this is one of those books which is a general text on management in so far as it does not refer to any specific industries or any specific businesses. It is committed to the view that management is an activity, a practice, a set of skills and techniques which are distinct from and uninfluenced by the kinds of organisations which are managed. The message from the authors is know this book and you can manage any business organisation. For we who have a commitment to a specific industry, such as hospitality, and who are concerned with hospitality management, this thinking is an anathema, It is an article of faith for us that the kind of business and industry we are in exerts a powerful force on the way it must be managed. Thus, to be a reader of this journal and to feel a need for this book, is a contradiction, Paul Slattery
Department of Catering Studies Hudder~~eld ~~lyte~~~~~
Stephen Cooper’s Financial Management is a general text and does not deal directly or indirectly with the specific problems of financial management in the hotel industry or tourism. It is, nevertheless, a volume which will be of interest both to senior accountants in our industry and, to some extent, persons hoping to qualify for the new examinations of the British Association of Hotel Accountants. Chapters which will be particularly useful to the latter are those dealing with investment appraisal, replacement decisions, leasing and working capital management. The book is well structured, thorough and comprehensive, and therefore any of the criticisms
158
which follow should not be assumed to detract from its undoubted value as a serious contribution to the professional literature on financial management. It is hoped that the author will note the observations listed below in order to make appropriate adjustments in subsequent editions of the book. In Chapter 2 the author is not correct when he states that the IRR and NPV methods pre-suppose reinvestment of cash inflows at the relevant rate, because no reinvestment assumption is, in fact, necessary. The IRR/NPV of a project should remain the same irrespective of what is done with inflowing funds. Chapter 10 deals with dividend policy. A significant omission here is a discussion of the ‘quaint’ rules of many institutions (trusts, pension funds, etc.) both in this country and the U.S.A., which disallow investments in shares if no dividend is paid. This factor should always be borne in mind when decisions on dividend policy are made. In Chapter 17 on working capital management the author states that ‘the rule of thumb for the current ratio is usually given as 2: l’, also, he suggests that the rule of thumb for the quick ratio is 1: 1. This clearly is an oversimplification; and it is a pity that no examples are given of typical current and quick ratios from a few selected industries, as differences from one industry to another are in this respect quite substantial. Thus most hotels/hotel companies will have a current ratio of approximately 1: 1. Wholesalers and mail order businesses will probably regard a current ratio of 5 : 1 as quite reasonable. The section on international finance (Chapter 20) is weak. In particular some reference to the
Book Reviews
4-way equivalence model of forward and spot rates, inflation and interest rates would have been useful, as would some discussion of the relative inefficiency of the foreign exchange markets which is consequent to the intervention of the central banks. Furthermore, discussion of the types of foreign exchange risk (transaction, translation, economic), and of which of them require hedging against in particular, would have been welcome. The strongest criticism, however, relates to the section on acquisitions and mergers in Chapter 19. In contrast to the author, the reviewer does not consider that diversificationperse justifies mergers, not only because shareholders do not require managers to form unit trusts for them but principally because wealth is not being created. Indeed, the prime and driving principle of mergers, the creation of wealth, is very much underplayed. Yet more erroneously, the author suggests that eps increases may be a justifiable objective in the pursuit of merger policy. This is not quite correct as any merger acquired for cash, not equity, would then be justifiable, whether fl per share or 3300 per share were offered. Eps objectives are never justifiable and, invariably, simply represent financial illusions. Financial Management is intended primarily for students studying for professional accounting examinations. It will certainly be found useful by more advanced university students on various postgraduate courses - particularly MBA programmes -who will find in the volume a complete and comprehensive treatment of the subject.
Richard Kotas Schiller International University