Basics Of Corporate Finance
July 20, 2018
Basics Of Corporate Finance
Corporate finance is a division of an organization which deals with investment and financial decisions. It is mainly concerned with increasing the value of shareholder through short-term and long-term financial planning along with the implementation of different strategies. The activities of corporate finance range from investment banking to capital investment decisions.
In an organization, the departments of the corporate finance are charged with overseeing and governing the financial activities of the firms and taking decisions related to capital decisions. The decisions include whether a proposed investment should be pursued, whether the dividends could be allotted to shareholders, whether to invest in equity, trade in digital currencies, etc. Trading in digital currencies and accepting the payments in virtual currencies are the latest trend in the financial sector. Read through the uTrader reviews to know more about digital currency. In addition to all this, the finance department manages current liabilities, current assets, and inventory control.
The task of corporate finance includes making various capital investments and deploying the long-term capital of the organization. The decision process in capital investment is mainly concerned with the capital budgeting. Through the process of capital budgeting, the company will identify the capital expenditures, does a comparison of planned investment with the potential proceeds, estimates the future cash flows and takes a decision on which project to be taken upon.
The most important task in corporate finance is making capital investments and it has serious business implications. The organization’s financial position might get compromised if there is poor capital budgeting like under-funded investments or excessive investing.
Corporate finance is responsible for sourcing the capital in form of equity or debt. A company would borrow the money from commercial banks and various other financial intermediaries. It will also issue debt securities through investment banks in capital markets. An organization would also choose to sell the stocks of their company to equity investors when they are in need of long-term funds to conduct business expansions. It is a balancing act with regard to taking decisions on relative weights between equity and debt. If the organization has too much debt then it would increase the chance of defaulting. Relying too much on equity will result in diluting the earning. The bottom line is that the capital financing will offer capital which is required to implement the capital investments.
Apart from these functions, corporate finance is also responsible for short-term financial management wherein the goal is to ensure the company has enough liquidity.