CORPORATE FINANCE

01/11/2019
Blog

What Is Corporate Finance?

Corporate finance is the division of finance that deals with financing, capital structuring, and investment decisions. Corporate finance is primarily concerned with maximizing shareholder value through long and short-term financial planning and the implementation of various strategies. Corporate finance activities range from capital investment decisions to investment banking.

Understanding Corporate Finance

Corporate finance departments are charged with governing and overseeing their firms' financial activities and capital investment decisions. Such decisions include whether to pursue a proposed investment and whether to pay for the investment with equity, debt, or both.

KEY TAKEAWAYS

  • Corporate finance is often associated with a firm's decision to undertake capital investments and other investment-related decisions.
  • Corporate finance manages short-term financial decisions that affect operations.
  • In addition to capital investments, corporate finance deals with sourcing capital.

It also includes whether shareholders should receive dividends. Additionally, the finance department manages current assets, current liabilities, and inventory control.

 

Types of Corporate Finance Tasks

Capital Investments

 

Corporate finance tasks include making capital investments and deploying a company's long-term capital. The capital investment decision process is primarily concerned with capital budgeting. Through capital budgeting, a company identifies capital expenditures, estimates future cash flows from proposed capital projects, compares planned investments with potential proceeds, and decides which projects to include in its capital budget.

 

Making capital investments is perhaps the most important corporate finance task that can have serious business implications. Poor capital budgeting (e.g., excessive investing or under-funded investments) can compromise a company's financial position, either because of increased financing costs or inadequate operating capacity.

 
 

Corporate financing includes the activities involved with a corporation's financing, investment, and capital budgeting decisions.

Capital Financing

 

Corporate finance is also responsible for sourcing capital in the form of debt or equity. A company may borrow from commercial banks and other financial intermediaries or may issue debt securities in the capital markets through investment banks (IB). A company may also choose to sell stocks to equity investors, especially when need large amounts of capital for business expansions.

 

Capital financing is a balancing act in terms of deciding on the relative amounts or weights between debt and equity. Having too much debt may increase default risk, and relying heavily on equity can dilute earnings and value for early investors. In the end, capital financing must provide the capital needed to implement capital investments.

 

Short-Term Liquidity

 

Corporate finance is also tasked with short-term financial management, where the goal is to ensure that there is enough liquidity to carry out continuing operations. Short-term financial management concerns current assets and current liabilities or working capital and operating cash flows. A company must be able to meet all its current liability obligations when due. This involves having enough current liquid assets to avoid disrupting a company's operations. Short-term financial management may also involve getting additional credit lines or issuing commercial papers as liquidity back-ups.

Trade Stocks and Cryptos on the World's Leading Social Trading Platform

Day trade, swing trade or invest in stocks, forex and cryptocurrencies at eToro. Choose from the leading global markets and enjoy instant execution at low, fixed prices. Learn more about eToro's completely transparent pricing policy and secure online community that encourages the open exchange of trading ideas.
Share

RELATED ARTICLES

CORPORATE FINANCE

CORPORATE FINANCE

You are applying for a Business Loan provided by Global Project Finance
PERSONAL FINANCE

PERSONAL FINANCE

You are applying for a Personal Finance provided by Global Project Finance
RENEWABLE ENERGY

RENEWABLE ENERGY

Global Project Finance is ready to assist you with re / financing your production of...
BRIDGING LOANS

BRIDGING LOANS

At Global Project Finance, we specialise in finding the right funding for your project, as...
BANK GUARANTEE/SBLC

BANK GUARANTEE/SBLC

Helping you chart the right course.
CERFITICATE

CERFITICATE

Global Project Finance Limited Certificate