ABOUT

Corporate finance is the area of finance dealing with the sources of funding and the capital structure of corporations and the actions that managers take to increase the value of the firm to the shareholders, as well as the tools and analysis used to allocate financial resources. The primary goal of corporate finance is to maximize or increase shareholder value.[1] Although it is in principle different from managerial finance which studies the financial management 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.

Investment analysis (or capital budgeting) is concerned with the setting of criteria about which value-adding projects should receive investment funding, and whether to finance that investment with equity or debt capital. Working capital management is the management of the company's monetary funds that deal with the short-term operating 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 customers).

The terms corporate finance and corporate financier are also associated with investment banking. The typical role of an investment bank is to evaluate the company's financial needs and raise the appropriate type of capital that best fits those needs. Thus, the terms "corporate finance" and "corporate financier" may be associated with transactions in which capital is raised in order to create, develop, grow or acquire businesses. Recent legal and regulatory developments in the U.S. will likely alter the makeup of the group of arrangers and financiers willing to arrange and provide financing for certain highly leveraged transactions.

Financial management overlaps with the financial function of the Accounting profession. However, financial accounting is the reporting of historical financial information, while financial management is concerned with the allocation of capital resources to increase a firm's value to the shareholders.

Management of working capital

Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the current assets (generally cash and cash equivalents, inventories and debtors) and the short term financing, such that cash flows and returns are acceptable.

1. Cash management Identify the cash balance which allows for the business to meet day to day expenses, but reduces cash holding costs.
2. Inventory management Identify the level of inventory which allows for uninterrupted production but reduces the investment in raw materials – and minimizes reordering costs – and hence increases cash flow. Note that "inventory" is usually the realm of operations management: given the potential impact on cash flow, and on the balance sheet in general, finance typically "gets involved in an oversight or policing way".See Supply chain management; Just In Time (JIT); Economic order quantity (EOQ);Dynamic lot size model; Economic production quantity (EPQ); Economic Lot Scheduling Problem; Inventory control problem; Safety stock.
3. Debtors management There are two inter-related roles here: Identify the appropriate credit policy, i.e. credit terms which will attract customers, such that any impact on cash flows and the cash conversion cycle will be offset by increased revenue and hence Return on Capital (or vice versa); see Discounts and allowances. Implement appropriate Credit scoring policies and techniques such that the risk of default on any new business is acceptable given these criteria.

Investment banking

Use of the term "corporate finance" varies considerably across the world. In the United States it is used, as above, to describe activities, analytical methods and techniques that deal with many aspects of a company's finances and capital. In the United Kingdom and Commonwealth countries, the terms "corporate finance" and "corporate financier" tend to be associated with investment banking – i.e. with transactions in which capital is raised for the corporation. These may include:

1. Raising seed, start-up, development or expansion capital
2. Mergers, demergers, acquisitions or the sale of private companies
3. Mergers, demergers and takeovers of public companies, including public-to-private deals
4. Management buy-out, buy-in or similar of companies, divisions or subsidiaries – typically backed by private equity
5. Equity issues by companies, including the flotation of companies on a recognised stock exchange in order to raise capital for development and/or to restructure ownership
6. Raising capital via the issue of other forms of equity, debt and related securities for the refinancing and restructuring of businesses
7. Financing joint ventures, project finance, infrastructure finance, public-private partnerships and privatisations
8. Secondary equity issues, whether by means of private placing or further issues on a stock market, especially where linked to one of the transactions listed above.
9. Raising debt and restructuring debt, especially when linked to the types of transactions listed above

Financial risk management

Risk management is the process of measuring risk and then developing and implementing strategies to manage ("hedge") that risk. Financial risk management, typically, is focused on the impact on corporate value due to adverse changes in commodity prices, interest rates, foreign exchange rates and stock prices (market risk). It will also play an important role in short term cash- and treasury management; see above. It is common for large corporations to have risk management teams; often these overlap with theinternal audit function. While it is impractical for small firms to have a formal risk management function, many still apply risk management informally. See also Enterprise risk management.

Short term financing. Identify the appropriate source of financing, given the cash conversion cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".

DISCUSS

1. Financial accounting
2. Stock market
3. Security (finance)
4. Growth stock
5. Financial planning
6. Investment bank
7. Venture capital
8. Financial statement analysis
9. Corporate tax
10. Corporate governance

Ifawalacatacas.com plays a financial activity in human and corporates developments.