Today, the corporate finance have taken up a major role in shaping up economies of even big countries. The capitalists have always relied upon the corporate to take the country forward and this has worked wonders in most of the advanced countries of the world today.
Corporate Finance has been a most vital and highly discussed topic owing to its importance in shaping up some of these big bodies today. The corporate finance is done most scientifically today, with some of the most powerful economic tools being used. The final aim of any finance being done on a corporate is to maximize the return to capital of the corporate.
The decision on finance can be both long term and short term based. While long terms finance decisions can be about whether the corporate should go for equity or for debt, or whether the firm should payout a dividend or not, the short term finance decision can be about the management of working capital.
For the private firm, the main objective of corporate finance is maximizing the stock prices. However, in case of firms that are not traded publicly, the main objective in corporate decision-making is considered to be the maximization of value of the firm. The various corporate finance, investment and dividend principles are thus different for public and non-public firms.
Similarly, for a not for profit organization, it is even more difficult to define the corporate finance principles, as the objective of such organizations is often to deliver service in the best and most efficient way possible, and not to just make profits. In such a case, the objective has to be defined in terms of cost efficiency.
Most of the governmental work comes in this category and the effort here must be cost minimization and not necessarily profit or wealth maximization. This is a different yardstick and therefore makes it difficult for a comparison of efficiencies between different firms, in this context.
Today, when the companies are so much answerable to the shareholders, it is the responsibility of the director board to ensure that the share value rises, irrespective of whatever reasons. They are to actively manage their corporate portfolios. The companies are to be the natural owners of their businesses and at the same time balance the investment opportunities, against supply of capital. They are to base these moves, on the forecasted returns of current and potential investments.
Through corporate finance, the management must be able to allocate the limited available resources between the various competing opportunities. This process is also known as capital budgeting, another main activity of the process of corporate finance. Allocating this capital correctly requires the estimation of the value of each available opportunity.
To achieve the various goals of the corporate finance, it requires that all corporate investment should be financed correctly. The finance mix that has been decided can impact the valuation. It is therefore imperative that the management identifies the ideal mix of finance the corporate.
The manner in which the corporate finance is done has great implications on the way the firm performs in the future. It has more of long term implication than the short term ones. It is therefore considered to be a key decision albeit an early one, that is pegged at changing the way or shaping the company’s future. This is why the subject of corporate finance assumes such significance.
History stands testimony to some of the great leaps and falls that have happened to companies around the world, the reasons for which have been pointed at the manner in which these were financed. The market is still full of activities and heat with the way in which some of the corporates are finance their next venture and the way the market is reacting to such decisions.