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Corporate Finance

Definition - What does Corporate Finance mean?

Corporate finance is all aspects of finance related to an organization, such as capital investment, operations, banking and budgeting. The process is intended to maximize the value for shareholders by a combination of short and long term financial planning. In short, any operation or aspect that involves the finances of an organization is part of corporate finance.

Divestopedia explains Corporate Finance

The idea behind corporate finance is to give shareholders maximum value for their money. This requires the management to adequately handle all aspects of finance. Whether it is capital funding, budgeting, investing, cash management or operating profit and loss, it is the responsibility of the management to ensure that shareholders get the maximum return on their investments in the form of dividends and increased share prices.

Though the goal remains the same, the exact nature of corporate finance varies from company to company, depending on the niche area in which they operate. Below are some of the general areas of corporate finance:

Capital Structure - the ability of a company to choose the right sources of initial funding for the company. This structure can comprise of equity, debt or a combination of both. Identifying the right combination results in the maximization of a firm's value.

Investments and Valuation - the worth of every project that a company undertakes is mostly measured using the discounted cash flow (DCF) method of valuation, though other methods may also be used at times. This valuation helps to determine if a project is likely to be profitable for the company as well as for the investors. The overall valuation of the organization is also measure and strategies to maximize are evaluated.

Dividend Policy - the set of policies that pertain to the payment of dividends to shareholders. When to issue dividends and for how much are some of the questions answered by this niche area of corporate finance.

Working Capital - managing the working capital is essential for the continued operations of the company; therefore, much time and effort goes into this area.

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