Financial management and corporate finance (2024)

Commentary - (2022) Volume 10, Issue 3

Jim Moshar^*

^*Correspondence:Jim Moshar, Department of Law, Terrace University of Leeds,Leeds,UK, Email:

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Description

Corporate finance is the domain of finance that deals withfunding sources, capital structures of corporations, managerialactions to raise the firm’s value to shareholders, and thetools and analyses used to distribute financial resources. Themaximisation or growth of shareholder value is the mainobjective of corporate finance. Corporate finance similarly hastwo primary sub-disciplines. Setting criteria for which valueaddingprojects should receive investment money and decidingwhether to finance that investment with equity or debt capitalare both aspects of capital budgeting. The management ofthe company’s cash, inventories, and short-term borrowingand lending, such as the terms of credit granted to clients, isknown as working capital management. It deals with the shorttermoperating balance of current assets and current liabilities.An investment bank’s typical task is to assess the company’sfinancial requirements and obtain the most suitable form ofcapital. As a result, the terms “corporate finance” and “corporatefinancier” may be used to refer to transactions in which moneyis raised for the purpose of starting, expanding, or buying acorporation. The composition of the group of arrangers andfinanciers prepared to arrange and provide financing for specifichighly leveraged deals will probably change as a result of recentlegal and regulatory developments in the United States.

The primary ideas in the study of corporate finance areapplicable to the financial issues of all different types oforganisations, even though it differs in theory from managerialfinance, which examines the financial management of allenterprises rather than corporations alone. The financialresponsibility of the accounting profession overlaps withfinancial management. Financial management, on the otherhand, focuses on the use of capital resources to raise a company’svalue to its shareholders while financial accounting is concernedwith the reporting of historical financial information. Financial management’s objective is to maximize or steadily raiseshareholder value. Managers must be able to balance capitalfunding between investments in “projects” that boost thecompany’s long-term sustainability and profitability, as well aspaying out surplus income as dividends to shareholders, in orderto maximise shareholder value. Managers of growth companieswill invest the majority of the company’s financial resourcesand extra cash in projects and investments so that the businesscan continue to expand in the future. Companies will use theirexcess cash to pay dividends to shareholders after they reachmaturity levels within their industry. The proper distribution ofthe company’s capital assets and cash surplus among projects,dividend payments to shareholders, and debt repayment tocreditors must be determined by managers through analysis.

Thus, a number of interconnected factors will be used tocompare investment proposals,

1. Corporate management aims to increase the firm’s worthby investing in projects that have a positive net present valuewhen calculated using a suitable discount rate that takes riskinto account.

2. Appropriate funding must also be provided for theseinitiatives.

3. According to financial theory, management should returnsome or all of the excess cash to shareholders if the company isunable to grow and does not require the extra cash.

The planning of long-term, value-adding corporate financialinitiatives connected to investments backed by and having animpact on the firm’s capital structure is referred to as “capitalbudgeting.” The limited resources of the company must bedivided among conflicting opportunities by management.Setting criteria for which projects should receive investmentmoney to raise the firm’s value and deciding whether to financethat investment with equity or debt capital are both aspects of capital budgeting. Investments should be made based on the value they provide to the company’s future. Expansion strategies, mergers and acquisitions, among many other sorts of investments, may be included in projects that raise a company’s worth. Management is required to distribute some or all of the surplus earnings as cash dividends or to repurchase the company’s stock through a share buyback programme when a firm is unable to grow or expand and has extra cash surplus that is not needed.