BBC Content Team
Finance: Corporate Finance
Updated: Sep 14, 2019
Corporate finance is the division of a company that deals with financial and investment decisions. It is primarily concerned with maximizing shareholder value through long-term and short-term financial planning and the implementation of various strategies. Activities within this range from capital investment decisions to investment banking. Corporate finance tasks include making capital investments and deploying a company's long-term capital. Although the capital investment decision process is primarily concerned with capital budgeting, a company can still identify capital expenditures, estimate future cash flows from proposed capital projects, compare planned investments with potential proceeds, and decide which projects to include in its capital budget.
Furthermore, corporate finance departments are charged with governing and overseeing their firms' financial activities and capital investment decisions. The finance department manages current assets, current liabilities, and inventory control. Such decisions include whether to pursue a proposed investment, whether to pay for the investment with equity, debt, or a hybrid of both; and whether shareholders should receive dividends.
Corporate finance is also responsible for sourcing capital in the form of debt or equity. A company may borrow from commercial banks and other financial intermediaries or may issue debt securities in the capital markets through investment banks. A company may also choose to sell stocks to equity investors, especially when raising long-term funds for business expansions. Capital financing is a balancing act in terms of deciding on the relative amounts or weights between debt and equity. Having too much debt may increase default risk, and relying heavily on equity can dilute earnings and value for early investors. In the end, capital financing must provide the capital needed to implement capital investments.
In conclusion, financial management for a company may require the completion of a variety of tasks since each stage is responsible for a different factor. Therefore, corporate finance allows a company to deal with financial and investment decisions thoroughly and in a well-versed manner.
By: Seetha Murugappan
Kenton, Will. “Corporate Finance.” Investopedia, Investopedia, 12 Mar. 2019, www.investopedia.com/terms/c/corporatefinance.asp.