What are the functions of corporate finance?

Corporate finance encompasses all financial operations necessary to run a corporation or a company. Corporate finance is concerned with managing money in a company, from the acquisition of funds to the management of the funds' use. In a small business, the owner may be able to manage the finances on his or her own. On the other hand, large corporations will have a finance department with a Chief Finance Officer (CFO) and a team of finance experts to oversee the company's finances. If you need help with a corporate finance assignment, go to our Corporate Finance Assignment Help page, where our experts will gladly assist you. The enhancement of shareholder value is a core aim of corporate finance. The CFO's role is to ensure that the company's operating funds are sufficient. Mergers, acquisitions, and other operations that impact a company's finances are also dealt with by corporate finance.

Corporate Finance is governed by three key functions.

#1 Capital Budgeting & Investments

Planning where to position the company's long-term capital assets in order to achieve the best risk-adjusted returns is part of investing and capital budgeting. This mostly entails determining whether or not to follow a particular investment opportunity, which is achieved by thorough financial analysis.

An organization may identify capital expenses, forecast cash flows from potential capital projects, compare planned investments to expected revenue, and determine which projects to include in the capital budget by using financial accounting methods.

Financial modeling is a technique for estimating the economic effect of a potential investment and comparing different projects. When comparing projects and selecting the best one, an analyst will often use the Internal Rate of Return (IRR) combined with Net Present Value (NPV).

#2 Capital Financing

This core task entails deciding how to best fund the capital investments (discussed above) using the company's equity, debt, or a combination of the two. Selling company stock or issuing debt securities in the market through investment banks may provide long-term financing for large capital projects or acquisitions.

Balancing the two sources of financing (equity and debt) should be carefully handled because too much debt will raise the risk of repayment default, whereas too much equity can dilute earnings and value for original investors.

Corporate finance experts are ultimately responsible for optimizing a company's capital structure by lowering the Weighted Average Cost of Capital (WACC) as much as possible.

#3 Dividends and Capital Return

This practice necessitates corporate executives deciding whether to keep a company's surplus profits for potential acquisitions and operations or to allocate them to shareholders in the form of dividends or stock buybacks.

Retained earnings that aren't allocated to shareholders can be used to help a company grow. This is also the best source of capital since it does not require additional leverage or dilute the value of equity by selling additional securities.

Finally, if corporate executives think they can achieve a higher rate of return on a capital investment than the company's cost of capital, they can go for it. Otherwise, they should pay dividends or buy back shares to return surplus capital to shareholders.

Conclusion

I hope you were able to understand all of the information presented above. If you need help with corporate finance, please visit our page Corporate finance homework help, where our experts can assist you.