Most of you, who are familiar with Corporate Finance, must be aware that corporate finance is nothing but managing the required funding and its sources. CF is also concerned with overseeing and optimizing the proficiencies of the capital structure to enhance the value of the company. One of the main objectives of corporate finance is to maximize the shareholder value in both short and long term. Let’s find out about the nature and scope of CF.
Scope of Corporate Finance
Capital investment decisions are an important part of corporate finance. These decisions include
- Deciding whether the dividends should be offered to shareholders or not
- Sanctioning or rejecting proposed investment. If the investment is approved, it is also to be decided whether the company should pay with debt of equity or both.
- Managing of short term assets and liabilities, investments, inventory control and other short term financial issues by the financial manager
Corporate finance understands the financial problems of a company and prevents them beforehand. It also deals with the financial aspects, promotion and administration of new enterprises.
Nature or Principles of Corporate Finance:
Corporate finance is based on the following three principles:
- The Investment Principle: According to this principle, the funds of an organization should be invested in such a way to derive maximum return on investment. This investment should be made at acceptable and minimum hurdle rate which depends on the project’s debt and equity. The riskier the project is; the higher will be the hurdle rate.
- The Financing Principle: According to this principle, one should choose the ratio of debts and equity in such a way so as to attain maximum return on investment and to match the assets’ financial nature. The corporate finance manager has to analyze how to attain the optimum financial mix of debt and equity for the organization.
- The Dividend Principle: According to this principle, when a business reaches a saturation point where cash flow surpasses the required fund, the corporate finance manager needs to search for alternative sources like dividends, stocks and assets to maintain a balance between the cash flow and required funds.
Thus, after knowing so much about CF, you must be more than eager to enroll for CF Certification at iACT Global. iACT Global is just the place for your dreams to come true. Through iACT Global you can study at your own convenience anywhere and at anytime. So, just enroll now!