Corporate Finance

Corporate Finance

What should  you know about Corporate Finance

Expanding your financial knowledge is essential if you want to gain a greater understanding of economy and finances. Today we will be discussing corporate finance and you will learn more about this are of finance that deals with the sources of funding capital structures such as large corporations.

4 Things You Must Learn About Corporate Finance

What Is The Primary Goal Of Corporate Finance?

The first thing we will discuss into further detail is the primary goal of financial management,google.com_.LeanGoal2 and that is to maximize or continually increase shareholder value.

In order to maximize the shareholder value, managers have to balance the capital funding of various investments in different projects and increase the firm’s or corporation’s long term profitability, sustainability, pay excess cash from dividends to shareholders and use the most of the firm’s capital resources and surplus cash to invest in projects.

These investments in return expand the business operations into the future and make the company grow and expand.

How Is Financial Security Achieved?

The goal of corporate finance is to invest finances appropriately. The sources of financing are generically obtained by issuing new debts and equity. stabilityIn other words, financial experts use various strategies to achieve the financial security of the company and its resources.

Financial experts use the trade-off theory which trades-off the tax debts with the bankruptcy costs of debt in order to allocate company’s resources. Also, Pecking Order Theory is used, where external and internal financing make sure that interest rates stay reasonably low. Also, Capital structure substitution theory is used to manage EPS, earnings per share.

Where Does The Capital Come From?

Surely, large corporations handle large sums of money. It is practically impossible to imagine all that money in one place, but the majority of financial experts only deal with pure numbers. In other words, all that money is just some scribbling on a piece of paper.

But where does the money come from in the first place? The sources of capital are debts capital, equity capital, and preferred stock – which is a term used to refer to dividends, common stock and bonds.

Financial Business Valuation Explained

Large corporations must invest and handle the resources the best they can. Because of this investment is closely connected to project valuation and each project’s value is extremely important.

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Each project’s value will be estimated using DCF or discontinued cash flow valuation and the opportunity with the highest value which is measured opposed to the net present value NPV.

In addition, we should also mention that NPV is often greatly affected by the discount rate. This rate, which is also often referred to as the hurdle rate is critical for good investments for the firm and project the appropriate discount rate.

Hopefully, this article has been informative, but if you would like to learn more about finance in detail, I suggest you read more about finance on my blog or even enroll a course in finance so that you can expand your knowledge and get the bigger picture when it comes to finances.

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