Corporate Finance has three main areas of concern. Evaluate the importance of them for a corporation?

Answer 1

Corporate finance is the lifeblood of any business. It relates directly to how a business will have enough money to deal with day-to-day issues, plan for the future and even deal with the funds that are already available.

Finance is a complicated area, but, it is one that every business has to master if they are to succeed. Here are the 3 main areas of concern in corporate finance that you must be aware of.

Corporate finance has three main areas of concern: capital budgeting, capital structure, and working capital.

Capital Budget

The capital budget is simply the process of understanding what the business is likely to need in the future. This is different from capital raising, where you actually need the funds.

You can use capital budgeting to assess the direction the firm is moving in and what expenditure is likely, this is a theoretical exercise that should cover all the different possibilities.

By keeping track of this, you’ll build an accurate picture of your business with your corporate specialist. This will help you to know what capital needs to be raised and when. Being able to plan this ensures that you are ready when you need to be.

There is no doubt that the bottom line is the most essential part of a business operating; if you’re not making a profit, the business will fail. Understanding the 3 areas of concern in corporate finance will help you to see the issues before they happen and plan around them; keeping your business going even if the balance sheet and the profit and loss suggest it’s not viable.

capital structure

If you are a stock investor who likes companies with good fundamentals, then a strong balance sheet is important to consider when seeking investment opportunities. By using three broad types of measurements—working capital, asset performance, and capital structure—you may evaluate the strength of a company's balance sheet, and thus its investment quality.

A firm's judicious use of debt and equity is a key indicator of a strong balance sheet. A healthy capital structure that reflects a low level of debt and a high amount of equity is a positive sign of investment quality. This article focuses on analyzing the balance sheet based on a company's capital structure.

Working Capital

Working capital is simply the money that is used on a day-to-day basis. You need to be able to purchase supplies, pay staff, and deal with other daily expenses. These should all be funded by the sale of your goods and services.

Tracking the incomings and outgoings of your business allows you to see how much working capital you have. It will also enable you to plan for purchases by knowing what funds are leftover.

Being aware of your working capital can help you to highlight cash flow issues and plan your way around them. This can mean adjusting supplier payments or you may feel the need to increase prices.