Corporate finance as managing financial activities involved in running a corporation. It involves managing the required finances and its sources. The basic role of corporate finance is to maximize the shareholders’ value in both short and long-term.
Corporate finance understands the financial problems of the organization beforehand and prevents them. Capital investments become an important part of corporate financial decisions such as, if dividends should be offered to shareholders or not, if the proposed investment option should be rejected or accepted, managing short-term investment and liabilities.
Corporate finance is different from business finance, while business finance refers to finance to all types of business such as partnership firms, joint stock companies, etc.., corporate finance includes, planning, raising, investing and monitoring of finance in order to achieve the financial goals of the organization.
Nature of Corporate Finance
Financing as well as investing choices are always termed as two sides of a same coin. That the firm must increase funds only when this has suitable ways in order to invest them. Features of corporate finance and characteristics of corporate finance offers different technology and also strategies what allow managers to evaluate financing and also investing choices. It’s therefore important for us to understand nature of corporate finance for well-being of a company. Here are some of the guidelines below discuss the characteristics, features and nature of corporate finance.
Corporate finance is a financial planning for a company. The characteristics of corporate finance includes preparation, raising funds, investing plus tracking each finance of organization. At short, it offers all financial aspects for the firm. This research, techniques and strategies are defined by each financial department lead through that finance supervisor.
An important features of corporate finance is to raise funds for the company. Finance can be accumulated through shares, bank loans, debentures, bonds, etc. It’s most hard for newer service providers in order to collect finance as their investors do not have confident and vision towards new businesses. Nevertheless, it is quite easy for respected companies to gather finance considering goodwill, reputation in the market.
One of the features of corporate finance is goal oriented. That means, it is important to regularly achieve each objectives associated with the company. The main goal of corporate finance are to maximize profits, giving good dividends to shareholders, as well as creating fund reserves for future expansion activities and so forth.
The nature of corporate finance notes for every company is to optimize investing needs for maximizing profits. Your finance can be used to quickly attain your investing objectives of the company. For example: it can be used to invest in machines or fixed assets. It’s can also be used for day to day company operations. That finance needs to be optimized for profitably.
There are two main options in the nature of corporate finance, i.e. working capital and fixed capital. Working-capital normally called as short-term finance. It’s mainly used to meet the short-term financial requirements for your business. For example: It can be used to cover your day-to-day expenses or operational cost of a company. Fixed capital normally called as long-term finance. It is always used to fulfill your very long-term financial requirements for your business. For example: buying a new manufacturing unit or fixed assets.
There are definitely various legal criteria to corporate finance. The company need to take the appropriate permission, from the finance regulatory board of the country for the rising finance from public. For example: In India SEBI (Securities and Exchange Board of India) and SEC (Securities Exchange Commission) in United States also offers to follow all of the guidelines to a company. This features of corporate finance need to be taken utmost care when raising funds.
Managing and Controlling
Financial management is excellent art considering that it needs individual skills, techniques, strategies as well as judgement. Nature of corporate finance requires ideal way for planning as well as control. Creating is needed in order to collect finance from the investors. It’s also necessary for investing their finance. Control is needed to find whether the finance are optimized and invested appropriately. If the finance is not been utilized properly then corrective steps should be taken and may also need to restructure the way finance is been utilized.
Corporate finance is plays a crucial and important role in business management. Characteristics of corporate finance is that it is a blood or life-line of a business. A nature of corporate finance is needed towards many business tasks. For example: It’s necessary for performing that business smoothly, its required for promoting business, for expansion, modernization, diversification, replacing old assets with new assets and more. Finance is also required for paying interest, dividend, taxes as well as for managing risks.
Dynamic in Nature
A dynamic in nature of corporate finance is a distinct feature of finance. That it goes on changing based on the change in planning, environment, circumstances, times, project delays etc. Your finance supervisor must suggestions new and innovative ideas to utilize savings, invested money and corporate finance. He must be a creativity when doing his task.
Connecting with Other Divisions
A nature of corporate finance has a near relationship with different divisions within a company. For example: marketing and promotional department, manufacturing department, advertising division, accounting department, etc. That is mainly because all the divisions require finance to perform their operation constantly and smoothly.
Scope of Corporate Finance
- Estimating Financial Requirements
A primary task associated with financial manager is to calculate long-term and short term financial requirements out of his business. To make certain you’ve got sufficient money, it is crucial to calculate the financial requirements before beginning a newer or expanding a current business. Firstly, figure out expenses, then divided into recurring expenses and one-time cost. According to the scope of corporate finance, management will create a current financial plan as well as forecast financial plan for future. For example: finance necessary for purchasing fixed assets, requirement of funds for working capital, etc. An essential factor to be considered when estimating financial requirements are repayment time, cost, liquidity, etc.
- Deciding Capital Structure
The capital structure looks how a firm finances their general operations, research and development by making use of various sources of funds. Financial debts appear in the form of bond issues or long-term bonds. While equity is classified as a preferred stock, retained earnings or common stock. Short-term debt including working capital fund as a scope of corporate finance for capital structure. Factors determining capital structure are trading on equity, flexibility of financial plan, degree of control, choice of investors, capital market condition, cost of financing, period of financing, sizes of a company, Stability of sales and more.
- Choosing the Source of Finance
One efficient financial control calls concerning various type of decision-making. A major significant move for any company should determine that sources of funds. Broadly, that the category of finance presented for any business is debt and also equity. Your proportion of funding will determine the capital structure of your company. When making that choice, you need to ensure that it fits your business conditions. An essential factor to be considered while selecting a source of finance are risk associated with source of finance, cost of finance, long term versus short term borrowing, dilution of control and management, flexibility in repayment, etc.
- Selecting a Pattern of Investment
Investment analysis actually broad term which encompasses a lot of different aspects to investing. This include evaluating historical returns to make predictions about future returns, selecting a right type of investment vehicle which best suit for investors requirement or analyzing bonds / stocks for valuation and investor specificity. An factors used for selecting pattern of investments as a scope of corporate finance are choosing the right asset classes, balancing stocks and bonds, figuring out your timeline, projected profitability, favorable asset utilization, intrinsic value (rather than market value), conservative capital structure, earnings momentum and more.
- Proper Cash Management
Cash management relates to a diverse area of finance involving the collection, planning, handling and use of cash. This involves evaluating promote liquidity, assets / investments and cash flow. The objective of cash management should be to regulate the cash balances or cash liquidity rather than investing in inventories or fixed assets to avoid the risk of insolvency. Aspects checked being a role of cash management incorporate a company liquidity, short-term investing methods and techniques and cash balances. Factors to be considered as a scope of corporate finance when managing liquidity are right time to buys raw materials, when to transforms those raw materials into products, effective manufacturing process, when it sells products, when it pays their bills and more.
- Implementing Financial Controls
Financial controls are definitely processes, procedures and policies that are implemented in order to handle funds. They play a role in an organization’s financial goals to fulfilling commitments of corporate governance, due diligence and fiduciary duty. Financial controls are implemented with automation, accountability and responsibility. An essential factor in implementing financial controls are Accounting Standards, Financial Statements, Policies, Operating Metrics, Segregation of Duties, Reconciliation, Approvals, Responsibilities, Disbursement Policies, Audit Trail, Information Security and more.
- Proper Usage of Surpluses
Surplus is that levels of an amount or resource in which exceeds your section that is used. A surplus can be used towards explain countless excess assets plus income, profits, goods and capital. A surplus frequently occurs in financial budgets, even spending have always been below the earnings. Finance excess is associated with demand and supply needs.
Your idea is to plan and make use of procedures to ensure this value creation works well and effectively. Therefore, things just like capital investment as well as investment banking are component concerning scope of corporate finance basics. Either the business is actually large or small, we probably have a committed person or even a division to oversee each financial strategies. They look after their corporate finance associated with company to ensure that business works effectively and appropriately.