Corporate finance deals with the financial decisions taken by corporations, along with the analysis and tools required for making such decisions. The principal aim of corporate finance is to enhance corporate value and reduce the company’s financial risks. In addition to this, corporate finance also deals with getting the maximum returns on the company’s invested capital. The major concepts of corporate finance are applied to the problems of finance encountered by all types of firms.
Corporate finance discipline can be split into short-term and long-term decision-making techniques. Capital investments are long-term decisions relating to projects and the methods required to finance them. On the other hand, capital management for working is considered a short-term decision that deals with short-term current liabilities and asset balance.
The main focus here rests on managing inventories, cash, lending, and borrowing on a short-term basis. Corporate finance is also associated with the field of investment banking. Here, the role of the investment banker is to evaluate the various projects coming to the bank and make proper investment decisions regarding them.
The Capital Structure:
A proper finance structure is required to achieve corporate finance’s set goals. Therefore, management has to design a proper structure with an optimal mix of the different available finance options. Generally, the sources of finance will comprise a mix of equity and debt. If a project is financed through debt, it results in a liability to the concerned company. Hence, in such cases, the flow of cash has various implications regardless of the project’s success.
Equity financing carries a lower risk regarding cash flow commitments, but the result is the dilution of earnings and ownership. The cost involved in equity finance is also higher than that of debt finance. Hence, it is understood that equity finance offsets the risk of cash flow. The management has to have a mix of both options.
Related Articles :
- Blogger Vs. WordPress
- Computer Madness and Childhood Addiction
- Understand How Owner Financing Works To Sell Your House Quickly
- Automobile companies see mixed results in Q4 on BS-II I impact
- Finance – Responsible Finance – Managing Your Money
The Decisions of Capital Investments:
Capital investments are the long-term decisions of corporate finance related to the capital structure and fixed assets. These decisions are based on several interrelated criteria. Corporate finance management attempts to maximize the firm’s value by making investments in projects that have a positive yield. The finance options for such projects have to be done properly.
