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 meaning thus extends to an array of financing and investment decisions that encompass four primary aspects, viz:
Now, let’s look at its in-detail meaning and scope.
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 impacts. It can be considered as a liaison between the capital market and the organisation. The corporate finance definition also encompasses effective resource utilisation and expenditure minimisation. Factors that contribute to its decision include term requirements of the company, urgency, risk appetite, etc.
A business undertakes such decisions to achieve pre-set financial goals while ensuring maximisation of shareholder value.
Apart from understanding what corporate finance is, understand what it covers.
Investment decisions that include analysis of different investment types to arrive at the best available alternative.
Financing decisions that extend to raising capital through different sources to restructure business finance.
Dividend decisions which include analysis of stockholders’ returns basis amount and time.
Management of working capital for efficient day-to-day running of the business.
Corporate financial services extending to the advisory role during M&As.
Development of financial strategies for policy implementations, which also reflect the working of advanced corporate finance.
Corporate financing includes raising funds via either:
The types of corporate finance also emphasise the difference between ownership and management, the basis for the development of strategies and procedures under this concept.
Owner’s 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 lent 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.
Some other corporate finance examples which can help in raising capital include –
Issuing company bonds
Avail loans and advances from NBFCs
Opting for ROVs (Real Options Valuations)
Complete the planning to monitoring stages of corporate finance to make suitable decisions regarding raising capital and investing. Accordingly, analyse and implement refinancing and restructuring strategies that help maximise the business’s returns.
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