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Corporate Finance

Corporate finance plays a vital role in every business. Irrespective of the size or type of business operations, every company seeks to streamline its corporate financing arm for optimum wealth distribution and return generation. Corporate finance thus extends to an array of financing and investment decisions that encompass these four primary aspects:

  • Planning finances

  • Raising funds

  • Investing

  • Monitoring

Now, let’s look at its detailed meaning and scope.

What is corporate finance?

Corporate finance refers to activities and transactions related to raising capital for the creation, development and acquisition of a business. It is directly related to company decisions which have financial or monetary impact. It can be considered as a liaison between the capital market and the organisation. A business undertakes such decisions to achieve pre-set financial goals while ensuring maximization of shareholder value.

Apart from understanding what corporate finance is, understand what it covers.

Scope of corporate finance

  1. Investment decisions that include analysis of different investment types to arrive at the best available alternative.

  2. Financing decisions that extend to raising capital through different sources to restructure business finance.

  3. Dividend decisions which include analysis of stockholders’ returns basis amount and time.

  4. Management of working capital for efficient day-to-day running of the business.

  5. Corporate financial services extending to the advisory role during M&As.

  6. Development of financial strategies for policy implementations, which also reflect the working of advanced corporate finance.

Types of corporate finance

Corporate financing includes raising funds via these two methods:

  • Equity funds – Equity or ownership finance is strictly limited to raising capital for the owners of a company.

  • Debt funds – Also known as external finance, debt funds come in multiple options like debentures, corporate loans, private financing, etc. While debentures can be issued to the general public for refinancing, institutional lenders are the primary source of private finance. They also charge commercial rates of interest on the borrowed amount. For example, a business has to pay a pre-determined interest to the lender as per the corporate loan interest rate if it opts for corporate finance.

Availing corporate finance in India is made easier by lenders like Bajaj Finserv offering a range of loans to help finance a business’s capital. It includes unsecured business loans, SME & MSME loans, plant & machinery loans, etc.

Additional examples of corporate finance

Some other types of corporate finance which can help in raising capital include:

  • Company bonds

  • Loans and advances from NBFCs

  • ROVs (Real Option Valuations)

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