Corporate finance represents the the financial decisions businesses make every day to maximize shareholder value. This might include financial planning, investments, capital purchases, risk assessments, cash flow management, dividend decisions, debt-equity ratios or even mergers and acquisitions.
Questions like whether a business should invest, how business assets are valued, and whether specific projects add value for the company are all relevant to corporate finance. Making the right financial decisions is critical to increasing a business’s value, but it can be hard to acquire the knowledge necessary to evaluate corporate finance situations.
Whether you’re a student, a business owner, or a finance professional looking to brush up on some skills, starting with these corporate finance textbooks is a great way to learn both the financial theory and the practical skills you’ll need to understand corporate financial decision making and evaluation in the corporate world.
Principles of Corporate Finance (Brealy, Myers and Allen)
This is an updated version of a classic textbook used in business schools. It covers basic finance principles and concepts in terms of both theory and practice. It is designed to focus on financial managers’ decision-making processes that enhance shareholder value.
The current version includes updated news articles and examples to contextualize each section, as well as lists of helpful websites for extended reading. It also includes explanations of how to use Excel spreadsheets to apply concepts and end-of-chapter problem sets.
Keep in mind the text can be verbose and the language can be technical for new students. However, each chapter covers the topic in depth and provides a strong foundation of corporate finance theory and practice. Overall, this is a solid and classic corporate finance foundational text utilized in many college classrooms around the country.
Fundamentals of Corporate Finance (Ross)
Stephen Ross is an MIT professor of Financial Economics, and well known in the field for developing arbitrage pricing theory and other financial research, as well as serving as the president of the American Finance Association.
The text takes what the author calls an “intuitive” approach, explaining problems in terms of basic common-sense before any specific examples are used. This is both a strength and a weakness, as the background information is presented well, but the examples can be very hard to understand even for those with a strong background in finance.
The text has been updated for modern classroom technology and includes links to supplemental web sites with Excel based problems and sample problems that show how to solve the problems using a financial calculator. With a real world approach that focuses on decisions made by financial managers, this text book represents an ideal partner for any undergraduate or graduate corporate finance class.
Corporate Finance: A Focused Approach
(Ehrhardt and Brigham)
Ehrhardt and Brigham use a combination of anecdotes and concrete examples which make this a solid, thorough, and easily followable text. While designed for MBA Finance-related coursework, it’s clear enough to use as a self-study manual. It doesn’t feel much like a textbook, employing numerous graphics and examples in an engaging format.
The material is concise, clear, and thorough. This book is particularly strong in corporate valuation and asset pricing models, including pricing models for interest-rate sensitive instruments. It’s also has many Excel examples, which are very useful but can take away from the theory and math behind computations. In other words, it prepares readers well for applying concepts using Excel, but students may not as easily retain an analytical understanding of the underlying concepts.
Overall this is a quality textbook which is ideally suited for MBA level finance classes. Students will appreciate the real world applications and the focus on spreadsheet based questions.
Fundamentals of Corporate Finance (Berk, DeMarzo and Harford)
Fundamentals of Corporate finance was written by three professors of graduate-level economics and research at the Stanford school of Business and the University of Washington. All three authors teach graduate level finance and economics courses at these top-ranked universities, and have industry experience at Goldman Sachs and other top financial institutions.
This is a less-well known text but still offers a comprehensive and approachable introduction to a variety of corporate finance topics such as interest rates, risk and return, corporate valuation, capital structure, mutual funds, asset pricing, and financial planning and forecasting. It reads very much like a textbook, but a good and thorough one. The examples are easy to follow and the book is well-organized, edited and produced.
Fundamentals of Corporate Finance (Parrino, Kidwell, and Bates)
This textbook emphasizes computational skills, focusing on the mathematics and basic concepts of finance in order to encourage students to develop the critical judgements necessary to use financial tools in actual decision-making scenarios. Like others on the list, it offers a nice combination of breadth and depth while covering the relevant financial topics to future corporate financial managers or those wishing to brush up on their skills.
The emphasis on intuitive understanding is helpful to come up with solutions to real-world tasks beyond what can be captured in typical example problem sets. It’s at a level of rigor appropriate for business, economics, or finance majors, and although very academic in tone, is relatively accessible and engaging.
Essentials of Corporate Finance (Ross, Westerfield, and Jordan)
This is a comprehensive McGraw hill corporate finance textbook as part of a larger series of financial, insurance, and real estate coursework for business majors. It’s comprehensive, thorough, and easy to understand, but also somewhat dry and hard to read, particularly if the subject doesn’t come easily to you.
The online assignments which come with the book can be quite challenging if you are working through it by yourself, but completing them is essential understanding the broader material provided in the book.
Ross, Westerfield, and Jordan are three more recognized experts in the field, and this does shine through in the way they present information and organize this book linearly, including real-world applications and how-to’s which are helpful to contextualize the information and visualize how it would apply in the real world.
Overall this is a solid choice that will be an appropriate choice for many university finance classrooms.
Bottom Line
If you are a hands-on learner, you may find it easier to understand complex corporate finance principles through Excel-based examples or real-world examples as used especially well in Ross Westerfield and Jordan’s or Ehrhardt and Brigham’s textbooks.
On the other hand, books like Parrino, Kidwell and Bates’ take a more conceptual look, providing the background knowledge which will provide you with an intuitive grasp of the same ideas.
Any of the texts on this list provide a solid foundation with a variety of more advanced topics in the world of corporate finance. We especially like that each textbook offers a wealth of tools and resources that bridge corporate finance theories with practical application.
