Corporate Finance

An overview of the corporate finance industry.

What is Corporate Finance?

Corporate finance deals with the capital structure of a corporation including its funding, and the actions management takes to increase the value of the company. Corporate finance also includes the tools and analysis utilized to distribute financial resources.

The ultimate purpose of corporate finance is to maximize the value of a business through planning and implementing management resources while balancing risk and profitability.

What are the Three Important Principles that Govern and Guide Corporate Finance?

Investment or Capital Budgeting
planning where to place the company’s long-term capital assets in order to generate more gains. This mainly involves deciding whether to finance the investment with equity or debt capital through capital budgeting or analysis. By using financial accounting tools, a company identifies capital expenditures, estimates cash flow from the proposed capital projects, compares planned investments with projected income, and decides which projects to include in the capital budget.

Capital Financing
financing investments through a business’s equity, debt, or a mix of both. Long-term funding for major capital expenditures or investments may be obtained from selling company stocks or issuing debt securities in the market through investment banks. Balancing these two sources should be closely managed because having too much debt may increase risk or default in repayment, and depending heavily on equity may dilute earnings and value for original investors.

Dividends
Requires corporate managers to decide whether to retain a business’s excess earnings for future investments and operational requirements or to distribute the earnings to shareholders in the form of cash or stock dividends.

Retained earnings may also be used for a business’s expansion. This can also be the best source of funds without incurring debts and decreasing value of equity shares.

How Important is the Company’s Capital Structure in Corporate Finance?

A company’s capital structure is crucial in maximizing the value of the business. Its structure can be a combination of long-term and short-term debt or common and preferred equity. The ratio between a firm’s liability and its equity is often the basis of determining how well balanced or risky capital financing is. A company that is heavily funded by debts has a more aggressive capital structure and therefore, potentially holds more risk for stakeholders; however, this risk is often the primary reason for a company’s growth and success.

What are the career paths in Corporate Finance?

At the Corporate Finance Institute we specialize in helping you advance your corporate finance career.

The best place to start is by exploring our Career Map and discovering the various jobs and positions that exist in corporate finance.

The main career paths in the corporate finance industry include:

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