CORPORATE FINANCE

Corporate finance includes planning, investing, raising and monitoring financial activities in order to achieve financial aims and objectives. All the corporate financial activities involve in running a corporation is covered under domain of corporate finance moreover all the decisions which have financial implications and uses money is a corporate financial decision. There is a financial department that regulates the financial activities and transitions of a company. Mainly corporate finance is focused on with maximization of shareholder value through long term and short term financial planning. Corporate finance is concern with implementation of strategies, capital investment decision and banking decisions.

Corporate finance department concentrate on the financial activities which include capital investment decisions like a proposed investment should be made or not? How should company pay for it, with debt or with equity or combination of both debt and equity? How much dividends on investment should be offered to shareholders? The corporate finance department seeks to find out answers of such questions where long term issues involve capital investments and purchase whereas short term issues are related to managing current assets and liabilities, inventory control and short term investments.

In U.K the term corporate finance or corporate financier is concerned with transactions in which capital is raised in order to built, grow, groom and acquire businesses. In U.K it is often associated with change in ownership of business at some degree and concern with corporate transaction that results in creation of new equity structure, shareholder base, underwriting, purchase and sell of equity and warrants.

Types of transactions that are involve in corporate finance are: raising, creating, developing and expansion of capital, equity issued by company, raising capital for specialist corporate investment,  mergers, acquisitions or sale of private companies, raising and restructuring debt, financing debt, managing buy outs, takeover of public companies. A corporate financial adviser is one who provides guideline and advice on all the corporate financial transaction. These corporate financial advisers can be from investment banks, private corporate consultancy or professional services.

Corporate finance department mainly include four functions which are: 1- Planning the finance, al the financial decisions of a company are taken by finance manager who has to decide what is the finance requirement of the company, what will be the sources of finances and how to use them efficiently. 2– Raising finance, in a company it is responsibility of finance manager to collect or raise finance for the company. Finances can be raised from several sources like shares, banks, creditors, debentures, other financial institutions and etc. 3- Investing the finance, there are two type of finances which are fixed and working capital which are used by finance manager in order to achieve financial objectives of the company. Fixed capital finance is used for the fixed investment like land, building, machinery, equipments and tools, etc whereas working capital finances are use for day to day expenditures and running of business like salaries, taxes, rent, bills, etc. 4- Monitoring the finances, finance manager has responsibility of controlling and regulating the finances of the company. He manages and monitors the uses of finances which aims at minimum wastage and misuse of finance, minimizing cost of finance, lowering the risk of investment, maximization of returns on finance.

Importance and objectives of corporate finance

For grow and expansion of any business its need of finance increases, where it’s for profit sector, not –for-profit sector or public sector finances and their management is key for success. The study of corporate finance explains the moves of financial markets and their interaction with business. Corporate finance helps all sectors to find adequate sources of finance and also they provide information and a large pool of sellers and buyers. Corporate finance helps business to make financial decisions with financial tools and analysis. The chief aim of corporate finance is to minimize the business’s financial risks while maximizing corporate value. Also corporate finance department aims at resolving all financial problems of the firm and taking all important decisions regarding finances which includes long term and short term financial decisions. Decisions regarding capital investments are long term decisions that involve choices about in which project company should invest. On other hand decisions on current assets and current liabilities, short term lending and borrowing are short term finance decisions.

Corporate finance covers every financial decision that affects the company which covers investment decisions where financial manager has to decide how to allocate available financial resources as per priority of department. Then comes financing decisions where company seek and analyze be the sources of finance and an adequate mix of finances. Corporate finance department also make dividend decisions where the finance manager decides how much should be invested back into operations and how much should be returned to owners. Then finally all the decisions are evaluated and analyzed to a final value.

Filed Under: Accounting