Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize corporate value while managing the firm’s financial risks. Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.
The discipline can be divided into long-term and short-term decisions and techniques. Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. On the other hand, short term decisions deal with the short-term balance of current assets and current liabilities; the focus here is on managing cash, inventories, and short-term borrowing and lending (such as the terms on credit extended to customers).
The terms corporate finance and corporate financier are also associated with investment banking. The typical role of an investment bank is to evaluate the company’s financial needs and raise the appropriate type of capital that best fits those needs. Thus, the terms “corporate finance” and “corporate financier” may be associated with transactions in which capital is raised in order to create, develop, grow or acquire businesses.
These may include
- Raising seed, start-up, development or expansion capital
- Mergers, demergers, acquisitions or the sale of private companies
- Mergers, demergers and takeovers of public companies, including public-to-private deals
- Management buy-out, buy-in or similar of companies, divisions or subsidiaries – typically backed by private equity
- Equity issues by companies, including the flotation of companies on a recognized stock exchange in
order to raise capital for development and/or to restructure ownership
- Raising capital via the issue of other forms of equity, debt and related securities for the refinancing
and restructuring of businesses
- Financing joint ventures, project finance, infrastructure finance, public-private partnerships privatizations
- Secondary equity issues, whether by means of private placing or further issues on a stock market,
especially where linked to one of the transactions listed above.
- Raising debt and restructuring debt, especially when linked to the types of transactions listed above