logo

Corporate Finance

Knowledge Center

Summary, forum, best practices, expert tips and information sources.

Contributed by: Hira Aziz

10 items • 2.697 visits

EnglishEnglishTranslate


Summary

What is Corporate Finance? Meaning.

World of corporate finance

Corporate finance (CF) is an umbrella term indicating the area of finance dealing with the acquisition, structuring and allocatation of the necessary capital of companies and corporations.


Defined somewhat more extensively, CF deals with managing the sources of long term funding (equity) and short term funding (debt capital), managing the capital structure (leverage), and making decisions about investment inititatives (projects) to increase the overall value generation by the firm. The term also includes the many instruments (methods, ratios), practices and analysis performed.


Goal of Corporate Finance

The primary goal of CF depends on the corporate purpose, but is typically to maximize or increase (long term) shareholder value.


Sub-Disciplines of Corporate Finance. Areas

The main sub-areas of corporate finance are funding capital, maintaining a leveraged capital structure, making decisions about the investment of capital in profitable projects, maintaining liquidity for day to day business operations and the dividend policy. The principal task of corporate finance is to enlarge the value of the company. In order to attain that goal corporate finance expands its work into five areas:

  1. Capital Acquisition (Funding): This involves the financing of capital and is typically done by issuing shares or debentures in the capital market, taking loans from financial institutions (banks), or by reinvesting prior earnings.
  2. Capital Structuring (Leverage, Gearing): A core function of corporate finance is to maintain the balance between equity and debt in the capital structure while lowering the overall cost of capital.
  3. Capital Budgeting (Investing): A well-researched and planned capital investment will regenerate considerable returns (money) and increases the value of the company. Poorly invested capital will degrade the financial position of the company. For investing long-term capital, corporate finance departments use capital budgeting in order to identify capital expenditures and discounted future cash-flows of the proposed project. To choose the best possible investment project, the returns should also be risk-adjusted. See also: WACC.
  4. Working Capital Management: This involves the management of short-term liquidity that is needed for carrying the day to day business operations that includes providing finance for current assets, current liabilities, and working capital needed for inventories and short-term borrowing and lending (such as the terms on credit extended to customers).
  5. Dividend Policy: This is concerned with the financial policies regarding paying cash dividends to the shareholders in the present or reinvesting them in the business (and paying an increased dividend at a later stage). Whether to issue a dividend, and how much, is determined mainly on the basis of the company's unallocated profit (excess cash) and the company's future, long-term earning power. As said, payment of surplus earnings can happen in the form of cash dividends, but also by repurchasing the company's stock (share buyback). See also: Total Shareholder Return.

Corporate Finance in Investment Banking

The terms "corporate finance" is also used by investment bankers to indicate the role of investment banks in assisting in the evaluation of a company's financial needs and in raising the appropriate type of capital that best fits those needs.


Sources:
Pascal Quiry, Yann Le Fur, Pierre Vernimmen, Antonio Salvi and Maurizio Dallocchio (2011), "Corporate Finance: Theory and Practice"
Stefan Deutscher (2003), "Corporate Finance and the Theory of the Firm".


Special Interest Group

Corporate Finance Special Interest Group.


Special Interest Group
Special Interest Group (31 members)

Forum

Forum about Corporate Finance. Below you can ask a question about this topic, share your experiences, report a new development, or explain something.



Start a new topic

Start a new topic about Corporate Finance

Best Practices

The best, top-rated topics about Corporate Finance. Here you will find the most valuable ideas and practical suggestions.


Expert Tips

Advanced insights about Corporate Finance. Here you will find professional advices by experts.


Information Sources

Various sources of information regarding Corporate Finance. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.


Article

Capital Structure

International Comparison
Study by Josepth P.H. Fan, Sharidan Titman and Garry J. Twite examines the capital structure and debt maturity choices o...
Article

Capital Structure

Main theories
Paper by Stein Frydenberg reviews the central theoretical Capital Structure literature. The most important arguments for...
Video

3 Minute Introduction to Financial Ratio Analysis: Why do it and What are the Main Types?

Types of Financial Ratios, Financial Ratio Analysis, Financial Ratio Types
Why financial ratio analysis? 1. To compare the financial health of (similar) companies (which one is doin...
Presentation

Financial Statements and Ratio Analyses

Corporate Finance, Financial Management, Financial Statements, Ratio Analyses
This presentation introduces financial statements and financial ratio analyses. 1. The Balance Sheet (example and analy...

Research Links

Jump to further research sources regarding Corporate Finance.


NWS

News

VID

Videos

PRS

Presentations

 
BKS

Books

ACA

Academic

WIK

More


Compare with: Mergers and Acquisitions  |  Corporate Governance  |  Corporate Performance Management

Special Interest Group

Special Interest Group

Do you know a lot about Corporate Finance? Become our SIG Leader and gain worldwide recognition as an expert.


Return to Management Hub: Decision-making & Valuation  |  Finance & Investing


More on Management  |  Return to Management Dictionary  |  Books about Corporate Finance


This ends our Corporate Finance summary and forum.



About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2023 12manage - The Executive Fast Track. V16.3 - Last updated: 27-9-2023. All names of their owners.




12manage is looking for BA/MBA students. More info.