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The Pros And Cons Of Corporate Finance

1685 Words7 Pages

Corporate Finance: Corporate finance is concerned with the financing and investment decisions made by the management of companies in pursuit of corporate goals. As a subject, corporate finance has a theoretical base which has evolved over many years and which continues to evolve. It has a practical side too, concerned with the study of how companies actually make financing and investment decisions, and it is often the case that theory and practice disagree. The fundamental problem that faces financial managers is how to secure the greatest possible return in exchange for accepting the smallest amount of risk. This necessarily requires that financial managers have available to them (and are able to use) a range of appropriate tools and techniques. …show more content…

The fundamental aim of financial managers is the optimal allocation of the scarce resources available to them – the scarce resource being money. Corporate finance theory therefore draws heavily on the subject of economics. In corporate there are two types of finance: Internal finance Sources of finance can be divided into external finance and internal finance. By internal finance we mean cash generated by a company which is not needed to meet operating costs, interest payments, tax liabilities, cash dividends or fixed asset replacement. This surplus cash is called retained earnings in corporate finance. Retained earnings must not be confused with the accounting term ‘retained profit’, which is found in both profit and loss accounts and balance sheets. Retained profit in the profit and loss account may not be cash, and retained profit in the balance sheet does not represent funds that can be invested. Only cash can be invested. A company with substantial retained profits in its balance sheet, no cash in the bank and a large overdraft will clearly be unable to finance investment from retained …show more content…

Corporate Finance is a department dealing with various aspects of finance with the goal of maximizing the value of corporation while reducing the chances of risks. Companies do business and make money. Some companies make a lot of money and of course require someone to manage that money. Otherwise survival of company is not possible. That is the time when corporate finance comes into action. It can be said that corporate finance department is the backbone of the company. Corporate finance is simply about advising. With the changing financial environment, the financial setup of the companies has become increasingly complex and time consuming. The more challenging environment requires new solutions to match changing business setup and strategies. Here a company requires corporate finance advice. Corporate finance teams contributes in the well being of company by assisting company managers to take the right financing decisions in order to maximize the shareholder

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