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Corporate Finance

Reviewed by Komal | Updated on Oct 05, 2020

Catalogue

Introduction

An organisation needs finance for its various activities, operations and projects. It needs to ensure that there is enough finance at every stage of development i.e., right from incorporation to its maturity. In the incorporation stage, the organisation needs finance to develop its basic infrastructures, such as establishing plants and machinery. In the development stage, it requires finance to expand its business operations by entering into joint ventures and mergers and acquisitions and funding its working capital requirements.

Thereafter, in the maturity stage, the organisation needs finance to stay competitive in the business through effective advertisement and constant improvement in its products. The process of managing the funds of an organisation is called financial management.

What is Corporate Finance?

Corporate finance involves financial decisions that an organisation makes in its daily business operations. It aims to utilise the capital, which the organisation has, to make more money while simultaneously reducing the risks of certain decisions. Thus, business decisions that involve the decision pertaining to the identification of sources of capital for funding corporations are corporate financial decisions.

A finance manager aims to effectively allocate and use the resources of an organisation. He is responsible for procuring funds from the market so as to reduce risks and cost. His functions include forecasting, planning, determining the capital structure, raising sufficient fund, designing investment policy, financial negotiation and planning dividend decision.

Here are the approaches to finance that has undergone three major changes:

  1. The first approach stated to the concept of finance is that it is a means of procuring funds by corporate entities to meet their financial requirements.
  2. The second approach stated that finance is related to all the functional areas of an organisation such as marketing, production, and research and development.
  3. The third approach also called the modern/managerial approach to finance, is a balanced and most widely acceptable approach. It states that finance is concerned with procuring and investing funds in profitable projects.

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