Reviews – Understanding Body Language

Book: Reading and understanding the Financial Times by Kevin Boakes

The Financial Times is one of the world’s leading financial daily newspapers whose authoritative voice on global business makes it a must-read. But unless you are on familiar terms with the minutiae of corporate finance, understanding what lies within those famous salmon pink pages can be a challenge.

In his introduction, Kevin Boakes, senior lecturer in the School of Accounting and Finance at Kingston University, writes that reading the FT is difficult at first but that with practice and guidance, it does get easier. Aimed at students in corporate finance and those on the first rungs of the career ladder in the financial services industry, this useful handbook makes the FT’s extensive business and financial coverage more accessible and a less daunting read.

Drawing on articles published in the FT throughout 2007, Boakes explores key themes in corporate finance such as private equity finance, mergers and acquisitions, and risk management and hedge funds. Articles are analysed in-depth and specialised financial terms are singled out for explanation, which serves as a helpful vocabulary. Further reading is provided, along with web addresses to try out new-found knowledge and a list of questions to encourage the reader to make judgements and commentary on the article. Additional material is also available through support podcasts and a dedicated website.

A good example of the articles selected is FT’s Lex column on valuing Sainsbury’s. Lex, according to the FT, is its agenda-setting column and this article on why Sainsbury’s market share price in May 2007 was 560p compared with a more realistic value of 400p/share based on a discounted cash flow approach, is a classic Lex commentary on the current stock market valuation of a company. Lex argued that a high price reflected a strong interest from private equity firms keen to bid for companies with strong cash flow and assets with potential to be exploited. In Sainsbury’s case, strong earnings from its stores and an impressive property portfolio, with a potential for sale and leaseback, would make it attractive to bidders. The analysis delves into the numbers and considers share valuation techniques.

While Boakes considers the whole gamut of corporate finance themes in this book, he devotes an entire topic to one British institution, Northern Rock, which will go down in history as the first British bank to come close to collapse, potentially undermining confidence in the UK’s financial markets and institutions. Four articles charting Northern Rock’s demise are picked over: the impact of the credit crisis and ensuing stock market tumbles, the role of the repo and the interbank markets, and the Bank of England’s decision to step in with a rescue plan for Northern Rock. Boakes’ commentary sheds light on the knock-on effects of the sub-prime crisis emanating from the US.

The trouble with relying on current articles is that they quickly date. In 2008, the credit crisis is still ongoing and taking casualties, among them Bear Sterns, one of the former stalwarts in US investment banking. But the point about this book is that it equips the reader with the skills to understand how financial markets work, so it doesn’t matter what news breaks tomorrow, it will make sense. Really, you’ll be an FT-pro in no time.

Reviewing and Understanding the Financial Times, Kevin Boakes, Pearson/FT Prentice Hall, ISBN 9780273715597

Review by Colette Steckel, deputy editor of accounting & business magazine