All activities of a business organization have an impact on its financial aspects. Any decision that involves money represents corporate finance. So, what is corporate finance?
Corporate finance is acquiring and managing money from all resources necessary for a business. In short, corporate finance is how to source funds and utilize them in the best way for the development of a business. It handles capital structuring, investment decisions, and funding, and focuses on boosting shareholder value by implementing different strategies and short-term financial planning.
What are the Activities Included in Corporate Finance?
Many corporate finance providers like DBS help the clients to understand their prospective customers and be future-ready. They help with regional connectivity, digital capabilities, and industry expertise. The customized solutions help their clients to meet short-term and long-term priorities and strategic goals. Corporate finance includes:
Capital Budgeting
Capital budgeting is an inevitable part of corporate finance. It involves planning the long-term investment capital of a company to get maximum risk-adjusted returns. The process includes deciding where to carry out an investment through an extensive financial assessment. In capital budgeting and investment, accounting tools are used to have estimated cash flows and capital expenditure of the project and compare the investment plans with the expected income. It will help identify the right project that should be included in the capital budget.
Financial Modeling
Financial modeling is one of the activities of corporate finance. It is applied to assess the economic influence of the investment and compare it with alternate projects. An analyst will compare the project with the Internal Rate of Return (IRR) and Net Present Value (NPV).
Capital Financing
Capital finance is the most important activity in corporate finance. It involves making decisions on how to fund the capital investments for equity and debt. By selling company stock and providing debt securities with the help of investment banks, long-term funding for capital expenditures is obtained. Both equity and debt need to be balanced because too much debt will raise repayment risk and too many equity shares will reduce the earnings and value of the investors.
Return of Capital and Dividends
This activity requires the assistance of an expert and corporate finance professionals in the business. The experts decide if the company should retain the excess earnings for future investments or distribute the earnings to the shareholders as dividends.
The corporate finance experts also manage current liabilities, current assets, and inventory control.
Importance of Corporate Finance
Corporates and other businesses need data insights to support them in decision making for:
- Dividend issue of the shareholders
- investment options
- Managing of liabilities
- Managing assets
- Managing capital investments
- Risk management
- Capital raising
- Investments
- financial monitoring
In short, corporate finance sets goals that enhance the company’s valuation and make investors secure. It provides restructuring decisions that improve the valuation and raises capital for expansion and deal with investors and equities. The corporate finance team also decides on merging other businesses and negotiating the best price.
