Corporate Finance

Topics: Corporate finance, Finance, Capital structure Pages: 4 (583 words) Published: March 3, 2009
Corporate finance:

Corporate finance is an area of finance dealing with the financial

decisions corporations make and the tools and analysis used to make

these decisions. The primary goal of corporate finance is to maximize

corporate value while managing the firm's financial risks. Although it is in

principle different from managerial finance which studies the financial

decisions of all firms, rather than corporations alone, the main concepts

in the study of corporate finance are applicable to the financial

problems of all kinds of firms.

The discipline can be divided into long-term and short-term decisions and

techniques. Capital investment decisions are long-term choices about

which projects receive investment, whether to finance that investment

with equity or debt, and when or whether to pay dividends to

shareholders. On the other hand, the short term decisions can be

grouped under the heading "Working capital management". This subject

deals with the short-term balance of current assets and current

liabilities; the focus here is on managing cash, inventories, and short-

term borrowing and lending (such as the terms on credit extended to


The terms Corporate finance and Corporate financier are also

associated with investment banking. The typical role of an investment

banker is to evaluate company's financial needs and raise the

appropriate type of capital that best fits those needs.

The financing decision:

Achieving the goals of corporate finance requires that any corporate

investment be financed appropriately. As above, since both hurdle rate

and cash flows (and hence the riskiness of the firm) will be affected,

the financing mix can impact the valuation. Management must therefore

identify the "optimal mix" of financing—the capital structure that

results in maximum value. (See Balance sheet, WACC, Fisher separation

theorem; but, see also...
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