Corporate Finance is a field of finance that deals with a company’s financial decisions. Not only this, Corporate Finance also involves the tools used for making such decisions. The term Corporate Finance is also related to investment banking which aims at evaluating a company’s financial requirements and raising capital for fulfilling them.
The analysis, tools and financial decisions that are needed to reach the final conclusions of a corporation together constitute Corporate Finance. The primary objective of Corporate Finance is to increase the value of the organization in the market and at the same time, reduce any financial risks involved. In addition to this, Corporate Finance also oversees that the business is getting maximum returns on its investments.
Basically, Corporate Finance can be divided into two types of corporate decisions: short term and long term decisions. The short term decisions of the company, such as capital management, deal with asset balance and current liabilities. Basically, these deal with management of inventories, cash and lending on short term basis. Long term decisions deal with capital investments in relation to projects and techniques needed for funding those projects.
When we see Corporate Finance in relation to investment banking, then we must understand that investment banker is responsible for evaluating different projects brought to the banking institution. This person also makes appropriate decisions regarding investments.
If you are a business owner and want to achieve your business objectives, then undoubtedly, you will need to have the right financial structure for your organization. This means that your company’s financial structure should be able to accommodate various finance options available, which can be anything from debt to equity. When you finance a project or business through equity, then there are fewer risks in terms of cash flow. If you finance it through debt, then it will soon become a liability to your company that will need to be assessed. This will automatically affect your company’s cash flow, even if the project succeeds in achieving its goals.
When an organization has been financed adequately, it receives enough funds to meet its contingencies. Its owners lead a higher standard of living and its employees are also well paid. This leads to an improved reputation of the company in the market, thus creating a good will among its customers, and thus, increasing its sales. In this way, Corporate Finance plays a major role in not only increasing sales of an organization but also improving its reputation in the industry.