Introduction to Corporate Finance
Corporate finance is the field of finance that deals with financial decisions of companies. Its main purpose is to analyze the different factors that can increase the market value of companies by improving profit percentage and limiting the risks and constraints involved. It is one of the major branches of finance and is also of great importance to the economy of a nation.
The main goals of corporate finance are:
1) To assess the appropriateness of investment decisions.
2) Optimize the structure of corporate balance sheets.
3) To reward providers of capital i.e. the investors or share holders.
4) Improve the financing conditions i.e. improve credit ratings so that the corporation can borrow more capital from financial institutions.
It involves managing internal resources like human resources as well as managing business banking requirements of a company. The financial departments are normally in charge of the evaluation of investment projects based on various factors. The companies also recruit the services of investment banks to advise them on financing methods, acquisitions, and financial risks and also to act as intermediaries between the company and the economic agents in lending like banks, investors etc.
The main motive of any company is to maximize profit and this can be efficiently achieved by investing in new ventures as it will increase productivity and sales. However, before investing there are factors that need to be considered and analyzed, which are:
Risk Involved: In corporate finance, the study of risk is done at almost every step of operation and mainly before starting a new project. A thorough study and research involving all kinds of risks will explain the feasibility of a project. For example, the management of a company identifies a region where they feel it will be very economical to start a new manufacturing unit however, risk study shows that the region is politically unstable and so the management will not go ahead with setting up the plant at that particular area, considering the risk involved.
Availability of resources: In order to keep a business running, it is necessary that there is no lack of required resources and so before starting any new venture, corporations first study the availability of resources. Even the cost of obtaining resources is considered along with transportation and other factors affecting them.
Thus, corporate finance is a vast field which encompasses all aspects of running a business with a motive of being profitable in order to sustain in a competitive market.
The main goals of corporate finance are:
1) To assess the appropriateness of investment decisions.
2) Optimize the structure of corporate balance sheets.
3) To reward providers of capital i.e. the investors or share holders.
4) Improve the financing conditions i.e. improve credit ratings so that the corporation can borrow more capital from financial institutions.
It involves managing internal resources like human resources as well as managing business banking requirements of a company. The financial departments are normally in charge of the evaluation of investment projects based on various factors. The companies also recruit the services of investment banks to advise them on financing methods, acquisitions, and financial risks and also to act as intermediaries between the company and the economic agents in lending like banks, investors etc.
The main motive of any company is to maximize profit and this can be efficiently achieved by investing in new ventures as it will increase productivity and sales. However, before investing there are factors that need to be considered and analyzed, which are:
Risk Involved: In corporate finance, the study of risk is done at almost every step of operation and mainly before starting a new project. A thorough study and research involving all kinds of risks will explain the feasibility of a project. For example, the management of a company identifies a region where they feel it will be very economical to start a new manufacturing unit however, risk study shows that the region is politically unstable and so the management will not go ahead with setting up the plant at that particular area, considering the risk involved.
Availability of resources: In order to keep a business running, it is necessary that there is no lack of required resources and so before starting any new venture, corporations first study the availability of resources. Even the cost of obtaining resources is considered along with transportation and other factors affecting them.
Thus, corporate finance is a vast field which encompasses all aspects of running a business with a motive of being profitable in order to sustain in a competitive market.
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