The concept of corporate financial accounting is used to maintain the financial accounting of a business. The main goal of financial accounting techniques opted by the businesses and firms is to estimate and then increase the firm’s value.
The corporate financial accounting deals with the policies or financial issues that are associated with attaining the financial goal of the firm. The accounting decisions taken by the firms include decisions regarding investment, capital formation, merger and acquisition and dividend distribution amongst the shareholders.
The corporate financial accounting maintains the balance sheet valuation of the firm’s assets and liabilities. The managers of the firm take necessary decisions to increase the values of shares while increasing the value of the firm.
The equity values of the firm are observed at different points in time and the financial decisions that are taken by the management can be judged effectively on that ground. The fundamental way of measuring the equity value of a company is done by subtracting the liabilities from the assets in the balance sheet.
But it is often seen that the book value of the firm’s equity value don’t find resemblance in the real life. This is because the assets of the firm are recorded in the balance sheet at historical rate that may be different from the present market value and also because some assets of the firm such as trademarks, patents, talented managers and loyal customers are not included in the balance sheet. Hence we can say that the balance sheet method is simple but is not accurate.
Determining the future flow of cash is another way to measure the value of the firm. A model to evaluate the firm is designed on cash flow giving a better picture of the effectiveness of the financial decisions.
Other ways of calculating the value of firm are:
Revenue, Inventory and Expenses
Uses and Sources of Cash
Firm Value, Debt Value and Equity Value
Cost of Capital