Corporate Finance
Corporate finance involves the management of a company's financial resources to achieve its financial goals and maximize shareholder value. It encompasses activities such as capital budgeting, investment decisions, and financing decisions. Corporate finance also involves analyzing and managing risks, as well as determining the optimal capital structure for the organization.
6 Key excerpts on "Corporate Finance"
eBook - ePub- Terence C.M. Tse(Author)
- 2017(Publication Date)
- Routledge(Publisher)
...9 Corporate Finance The big picture Chapter Overview The aim of this book was to provide a clear understanding of the fundamentals of Corporate Finance. For many beginners, learning these fundamentals can be challenging. One of the major obstacles is the ability to see how the many concepts and themes introduced are connected to each other. Being able to grasp the relationships between the concepts can certainly help to reinforce an understanding of the underlying rationale behind them. This, in turn, often makes it easier to get a view of Corporate Finance as a whole. Figure 9.1 forms the core of the final chapter and is an original way of capturing all the topics covered in this book in one summarising picture, explicitly displaying the connections between them. The rest of the chapter offers a summary of the key topics outlined in the figure. From Economics and Accounting… Corporate Finance is about creating value for investors in a company, especially the shareholders. Some of the foundations of value creation originate from economics. The subject of economics suggests that an individual or a company aims to reap the maximum benefit from investing their limited resources. These resources, from the corporate perspective, often include employees, buildings and machines. Yet, the one single most important resource for hiring people and buying equipment is capital, which is at the centre of Corporate Finance. Therefore, Corporate Finance represents concepts and tools that help managers make money Figure 9.1 Corporate Finance: the big picture and generate a return for the investors, namely those who injected capital in the business. To generate a return for the investors, managers have to improve and expand the company’s operations. This is why the accounting financial statements play such an important role in Corporate Finance...
eBook - ePub- Robert Irons(Author)
- 2019(Publication Date)
- Routledge(Publisher)
...10 Finance Within the Firm This chapter is intended as an overview of how finance is used both in the economy and within the corporate structure. We will discuss the role finance plays in different industries as well as within a company. We will review the different forms of organization a business can take, along with the benefits and shortcomings of each form. Finally, we will discuss the goals financial managers should pursue in the decisions they make. The Role of Finance Within a business, the role of finance is to determine how money is to be raised, spent and invested. Funds raised from different sources have different costs and different associated risks. The chief financial officer decides whether to issue new bonds, for what maturity and paying what interest rate, or to issue equity, preferred or common, and what dividend to pay the shareholders. The ability to raise money quickly and at a reasonable cost directly impacts other decisions the firm will make, from what markets to enter to how many people to hire. The CFO will help to decide what products to make and how to make them, based on the costs associated with the production processes and the cash flows realized from the products. The CFO determines how much cash to make available for operations and where to invest any leftover cash. Credit policy, inventory valuation and dividend policy all fall under the responsibility of the head of the finance department. Within a corporation, money is followed carefully through the system, and it is managed both for the short term and the long term. In the short term, the firm must decide how much cash to keep on hand, how much inventory to keep on the shelves, how much credit to extend and to whom and whether to pay the bills quickly to get a discount or pay them later at full price...
eBook - ePubBusiness for Communicators
The Essential Guide to Success in Corporate and Public Affairs
- Sandra Duhé(Author)
- 2021(Publication Date)
- Routledge(Publisher)
...Corporate Finance is a commanding force, led by the Chief Financial Officer, or CFO. The function controls a company’s purse strings, so you can understand why it’s involved in every major decision a company makes. If you, too, want to be influential in company decision-making, you need to understand (and speak) finance. And that’s precisely our focus in this chapter. The Focus on Creating Value We know from Chapter 2 that the purpose of the firm is to create value. But value for whom? And what do we mean by value? Value relates to stock price and asset value as well as to brand value, customer value, and reputation value. The overarching idea of creating value is for the firm to deliver benefits to a variety of stakeholders that exceed the costs of those benefits (Hillstrom, 2020). A firm that continuously delivers value will thrive. One that fails to do so will not. A key component of value creation is identifying which activities actually drive value for a corporation and then dedicating limited resources to those activities. Can effective communication and stakeholder relationship-building contribute to value creation? Absolutely, and so can technology, innovation, management, intellectual property, and employee talent. The challenge for the firm is to figure out how to link both tangible (e.g., machinery) and intangible (e.g., knowledge) assets to value creation, which is the essence of corporate strategy. 1 Shareholder value indicates the returns and wealth created for a company’s stockholders. In Chapter 2, we addressed the difference between focusing mainly on the interests of shareholders (shareholder primacy) versus attempting to balance the varied interests of many stakeholders (stakeholder model), including employees, customers, suppliers, and, yes, investors, too. The concept of shareholder value gained dominance in the U.S. in the 1980s, following an economic downturn in the late 1970s (Heillbron, Verheul, & Quak, 2014)...
eBook - ePubInternational Public Financial Management
Essentials of Public Sector Accounting
- Gary Bandy(Author)
- 2018(Publication Date)
- Routledge(Publisher)
...based on the investment’s market value. 4.1 Business finance Financial management is the process of acquiring and using finance. Successful financial management suggests that the organization’s finance has been sourced and invested in such a way that the organization’s objectives are achieved. Financial management should happen within the bounds of a financial strategy. The financial strategy of a private sector organization will generally comprise three decisions which are all interrelated: investment decisions (decisions about how to use the organization’s financial resources), financing decisions (about how the investments will be financed), and dividend decisions (about whether profits should be withdrawn from the business or reinvested). Financial objectives Financial objectives are those that can be measured in monetary terms. In profit-seeking organizations the principal stakeholder is the shareholder and the key financial goal will be to increase the shareholder’s wealth. Often (usually) this will mean generating profits as a return on their investment. There are, though, companies which run at a loss for many years (for example, Amazon and Uber) but the shareholders’ wealth increases because of changes in the share price. Shareholders’ wealth comes from the return they make on their investment in terms of the dividends they receive and the capital gain in the value of their shares (which might be listed on a stock exchange or tradable in private). The total shareholder return on an investment is: (dividend per share + increase in share price per share) ÷ share price at the start of the period. Other financial objectives an organization may have include: generating enough cash to be able to pay interest and principal on loans, suppliers’ invoices, and employees’ salaries on time maximizing the revenue from customers minimizing expenses minimizing tax. There are many indicators of financial performance...
eBook - ePub- Rajesh Kumar(Author)
- 2017(Publication Date)
- Academic Press(Publisher)
...1 Perspectives on strategic finance Abstract Financial resources are the foundation of the strategic plan and financial value is the unifying factor which bonds products, market and operating decisions associated with strategic options. The primary finance function is to identify and plan for the proper mix of financing to support strategic activity and to ensure that funds are employed to achieve expected returns. Finance function is the central fulcrum which holds businesses together, manages its controls and information in a decentralized step up. It can be argued that in the long run, all planning leads to financial planning. Finance is the main link between strategic plans and their implementation. Value drivers should be directly linked to shareholder value creation and measured by both financial and operational key performance indicators (KPIs) which must cover long term growth and operating performance. Stock price maximization is one of the significant factor for value maximization objectives. The concept of measuring and managing shareholder value is of paramount importance on account of the increasing relevance of capital markets and corporate governance. The main value drivers for shareholder wealth creation are intangibles, operating, investment and financial. In R&D organizations, intangible assets are a key driver of innovation and organizational value. The information age has an important role for finance. Restructuring is the corporate management strategy of reorganizing a company for value creation. Mergers and acquisitions (M&A) are a part of corporate restructuring activities. Investment decision is considered as the first among equals. The real options valuation is a dynamic approach to valuation in terms of flexibility and growth opportunities. The investment, financing and dividend decisions are the three main pillars of decision making in Corporate Finance. Share buyback programs are gaining relevance...
eBook - ePub- Chris Jones(Author)
- 2008(Publication Date)
- Routledge(Publisher)
...7 Corporate Finance A significant proportion of capital investment is financed through security sales. While consumers borrow funds to purchase homes, cars and other capital assets, most private investment is undertaken by corporate firms who sell a range of securities that are classified in general terms as debt and equity instruments. Many of these securities are purchased by large institutional investors, such as insurance companies and mutual funds, who convert them into derivative securities. As specialist finance institutions they facilitate resource flows at lower cost, which has the potential to simultaneously raise the expected returns received by consumers at each level of risk and to reduce the cost of capital for firms financing risky investments. Consumers bundle securities together into portfolios to determine their future consumption risk, while institutional investors create derivative securities to satisfy consumer risk preferences and to earn profits from private information about the net cash flows of firms which are ultimately paid as security returns. By exploiting profitable opportunities they provide firm managers with a greater incentive to operate in the interest of their shareholders and bondholders, but these ideals may be compromised when there are trading costs and asymmetric information. Before analysing the financial policy choices of firms we summarize the different ways they can raise funds for investment in Section 7.1. Many of the primary assets they sell are used by financial institutions to create a vast array of derivative securities that perform a number of important wealth-creating roles, including the provision of risk-spreading services and transfers of information through arbitrage activity...
