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Corporate finance deals with strategic financial decisions of a company such as how to do capital raising, investment decisions, dividend distribution, whether a merger with another company would be positive for the company etc. Corporate finance includes accounting, insurance, venture capital, and corporate development, commercial and investment banking and strategic planning. All corporate financial decisions are taken with the sole intent of maximize the shareholder’s wealth.
The funds acquired by the corporation from internal and external sources needs to allocated/invested in current assets and fixed assets. Corporate finance should balance the desires of employees, customers, and suppliers against the interests of the shareholders.
Corporate finance as a principle has to focus on realizing the maximum profit from existing financial resources with least cost incurred in getting those benefits.
The fundamental corporate finance functions are related to;
1) Financing function i.e. raising capital
2) Capital budgeting functions i.e. selecting projects with minimum risk and maximum return.
3) Financial management function i.e. cash flow management and balancing debt equity ratio
4) Corporate governance function i.e. developing a business governance structure to support ethical behavior and
5) Risk management function i.e. management of risk exposure
Corporate finance decisions can be divided into long-term and short-term decisions and techniques.
The long term options include capital structure decisions like whether to finance a particular investment with debt or equity, which projects will receive investment, when and whether the company should pay dividends to the shareholders. The capital investment decisions are influenced by factors like business risk, company’s tax exposure, financial flexibility, management style, growth rate and market Conditions. The investment decision requires estimating the value of the project. Trade-off
The short-term decisions and techniques deal with the short-term balance of current assets and liabilities, how to deal with cash, inventories, short term borrowings and lending terms.
Corporate Finance is a complex topic and an essay on this can be done only when you have carried out extensive research on the subject. Our research paper writing service employs only the best writers who conduct comprehensive researches before starting an essay.
To take optimal corporate financial decisions there needs be better understanding of the principles and tools for evaluating the firm´s investment and financing decisions. The techniques of discounted cash flow (DCF) valuation and real options will help in analyzing intricate investment decisions. The various parameters used in making financial decisions are the firm´s debt and equity mix , dividend policy etc which will help you to understand how financial decisions affect the firm´s cost of capital and value.
Some important topics in corporate finance are agent-principal relationship, the calculations and uses of the cost of capital in capital budgeting, Net Present Value (NPV), cost of capital, risk types, risk analysis techniques, the effect of leverage on a project’s return, dividend theories, capital investment decision, balance sheet analysis, cash conversion cycle, fisher separation theorem, business valuation, working capital management etc.
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