Corporate Finance

What Is Corporate Finance?

Corporate finance is the subfield of finance that deals with
how corporations address funding sources, capital
structuring, accounting, and investment decisions.
Corporate finance is often concerned with maximizing
shareholder value through long- and short-term financial
planning and the implementation of various strategies.
Corporate finance activities range from capital investment to
tax considerations.
Understanding Corporate Finance
Corporate finance departments are charged with governing and
overseeing their firms' financial activities and capital
investment decisions. Such decisions include whether to pursue
a proposed investment and whether to pay for the investment
with equity, debt, or both. They also include whether
shareholders should receive dividends, and if so, at what
dividend yield. Additionally, the finance department manages
current assets, current liabilities, and inventory control.
Capital Investments
Corporate finance tasks include making capital
investments and deploying a company's long-term
capital. The capital investment decision process is
primarily concerned with capital budgeting.
Through capital budgeting, a company identifies
capital expenditures, estimates future cash flows
from proposed capital projects, compares planned
investments with potential proceeds, and decides
which projects to include in its capital budget.
Capital Financing
Corporate finance is also responsible for sourcing capital in the
form of debt or equity. A company may borrow from
commercial banks and other financial intermediaries or may
issue debt securities in the capital markets through investment
banks. A company may also choose to sell stocks to equity
investors, especially when it needs large amounts of capital for
business expansions.
Short-Term Liquidity
Corporate finance is also tasked with short-term
financial management, where the goal is to
ensure that there is enough liquidity to carry out
continuing operations. Short-term financial
management concerns current assets and current
liabilities or working capital and operating cash
flows. A company must be able to meet all its
current liability obligations when due. This
involves having enough current liquid assets to
avoid disrupting a company's operations.
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