In 2005 all publicly-listed European firms will be obliged to present their financial results using the 'fair value method'. Traditional accounting practices will be replaced by a new methodology in which market values play a prominent role. It is expected that the importance of market values will continue to increase even further in the more distant future.

Firms, investors, analysts and other interested parties think much more in terms of (expected) cash flows and risks now. Traditional profit-based thinking is slowly but gradually replaced by this new approach in which the combined analysis of expected cash flows and risk translates into the 'value' of the firm (or an individual investment project). The increased uncertainty levels in the financial world have led to a substantial change in financial management practice. Financial managers take decisions that have a direct impact on the firm's expected future cash flows and/or the risk levels associated with these cash flows. Financial managers need to rake decisions that maximize the value of the firm.

The cash-flow-based approach will play a prominent role in this book. Cash flow forecasts play an important role in this approach. Good decisions are not possible without these forecasts. After initiation of investment plans actual realizations of cash flow need to be compared with forecasts. If necessary, management needs to adjust its investment plans. Performance measurement will help management to detect negative deviations in time. In recent years the level of sophistication of financial performance measurement has substantially increased.

The following topics are covered in the book:
- The shift from profit-based thinking to a valuation-based approach
- Operational activities of the firm
- Performance measurement
- Operational activities and risk
- Risk management

This book is written for students of financial management at the graduate and undergraduate level. It is also useful for practitioners that need to take solid financial decisions in a profit- or non-profit environment.

Professor André B. Dorsman, Ph.D., is professor of finance at Nyenrode University. He is also a member of the Economic Faculty at Free University Amsterdam.