According to the definition of corporate finance, a huge number of financial activities are involved which includes creating funds for ongoing ventures, creating investment options, merging with other companies, masterminding acquisitions, and taking care about company’s stocks in the stock market.
As this list exemplifies, there are a lot of corporate activities which are related to corporate finance and a lot of financial professionals need to be involved in the process in order to perform all of these activities. Private investors, venture capitalists, banks, brokers, corporate attorneys and corporate financial experts are some of the professionals, involved in the corporate finance activities.
Because of all these activities, corporate finance can be described as, the process of creating the business strategies, using corporate techniques and financial processes to acquire, manage, and using capital assets in the best manner.
Corporate finance is related deeply with globalization. Before going further, one should understand the actual meaning of the so called globalization. With the technological advancements and recently expanded travel market around the world the businesses have begun to flourish in the markets outside the company�s local area or territory.
Now the spices produced in India can find customers from Africa or Australia or from any part of the world and can be delivered to the customer, within a few days instead of months. In the past there were businesses which were localized and limited to isolated markets but globalization has done the merging of all the markets around the world.
Globalization has played a leading role in eliminating the concept of localized and isolated markets. This elimination has increased the competition among companies very dramatically. This has influenced the corporate finance market to a huge extent and the corporate finance options have increased very rapidly. Now, the financial resources of international investors can used by the companies whenever they need that. The only thing, essential for availing the international investment funding options, is to elaborate the conceptions about international finance.
So, it can be said that, the function of Corporate Finance companies are to adding value in a company’s profile and to design, plan and execute the planned financing programs, handle cash resources and creating new options to gather resources and to enforce and look after financial strategies, follow the tax laws, and looking after the stock markets.
All the above functions are linked with each other and depends on each other. For example, if a company wants to complete a designed project the company needs to raise capital. So, it is necessary that budgeting of capital and financing remain interlinked with each other.
Decisions,taken in the corporate finance companies are based on the time period and can be divided in two types
Long term decisions :-
It is remains concerned with the investment decisions like assessment of a project, arranging finance through debt or equity, re-invest or to pay dividend out of the profit, etc.
Long term corporate finance, are called Capital Investment Decisions because these are related to fixed assets and capital structure. Senior managements usually remains dedicated to raise the value of the firm by investing in Net Present Value projects. In absence of such options re-investment of profits are generally stalled and the surplus cash is divided among the shareholders which is called dividends.
Capital Investment Decisions are of three types:
Decision on financing
Decision on investment
Decision on dividend
Short term decisions :-
Working capital management is known as short term decisions which maintains a balance between assets in hand like cash, inventories, etc and current financial burdens like the company’s pending debts or obligations.
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Last Updated on : 1st August 2013