Introduction to Corporate Finance

 

Corporate finance refers to the financial framework of a company. It involves different aspects including financial planning, budgeting, capital structuring, forecasting, and investments, and is crucial to the success of any firm. A business cannot survive without a strategic and sustainable corporate finance system. 

 

Interested in this area? This introduction to corporate finance covers the basics you need to know:

 

Capital investing 

 

Companies invest in projects and acquisitions using money that will otherwise be idle. Investing provides an opportunity to get higher returns compared to simply putting money in the bank. But successful investments require thorough long-term planning, and this is where corporate finance comes in! 

 

It’s the job of corporate finance experts to properly manage investments and minimiserisk. Capital budgeting, which involves researching companies and opportunities, plays a critical role in capital investing. Many companies hire third-party financial analysts and accounting advisors who can do these tasks on their behalf. The best advisory firms have systems and technologies in place to look at historical capital expenditures, financial metrics, cash flows, and other matters that affect the viability of an investment. 

 

Capital financing 

 

The investments that a company will make require financing. This is where capital financing comes in. It seeks ways to optimally finance investments through equity and/or debt. Debt often means getting loans from commercial banks, while equity financing means selling public stocks. Most firms combine the two methods to avoid high periodical repayments and to keep the value of their stock high. 

 

Professional financial analysts have to determine the right blend of equity and debt for a company and its goals. They do this by considering several factors like the company’s weighted average cost of capital, with the objective of lowering the cost of equity and debt as much as possible. These advisors work with C-suite executives, CEOs, and boards to define and resolve questions around profitability, growth, tax planning, sustainability, and operating models.






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