GENERAL OVERVIEW OF CORPORATE FINANCE

From startups to multinational conglomerates, corporate finance is literally a critical element in guiding companies towards attaining their financial goals, optimizing resources, and maximizing shareholder value. As it involves the planning and financing of investments made by a company as well as the distribution or reinvestment of the income generated, the primary goal of corporate finance is to maximize shareholder value while striking a balance between risks and profitability, which entails both the long and short term financial planning while implementing various strategies, capital investment, and tax considerations.

First of all, when discussing about the field of corporate finance, it is essentially a branch or a part of financial management concerning with how corporations or companies address funding sources, capital structuring, investment decisions, and accounting. It is a broad subject comprised of many topics including capital structure, capital financing, risk management, capital budgeting, and the time value of money. Because the ultimate purpose of corporate finance is to maximize the value of a business through planning and implementation of resources while balancing risks and profitability, it also incorporates the tools and analysis utilized to prioritize and distribute financial resources. Hence, the financial management of a corporation or a company involves two functions, namely are:

1. Resource Acquisition: This function involves generating funds from internal and external sources at the lowest possible cost to the corporation. The two main categories of resources, in this case, are equity and liabilities. Equity refers to proceeds (profits) from the sale of stocks, retained earnings, and returns from investments. Whereas liabilities refer to the commitments from which an entity derives value including bank loans, other debts, product warranties, accounts payables, etc.

2. Resource Allocation: This function refers to investing funds with the goal of increasing shareholders’ wealth over time. The two main categories of investments, in this stage, are current assets and fixed assets. Current assets encompass cash, inventory, and accounts receivables, while fixed assets on the other hand are buildings, real estate, and machinery.

Second of all, corporate finance is crucial because it enables businesses to manage their financial risks, for example, by hedging against stock market or interest rate fluctuations. Due to the fact that some companies can control their exposure to currency risks, corporate finance therefore provides the necessary tools to enable them to make sound financial decisions for growth and success in the long run. Regardless of the size or the type of business operation, each company seeks to streamline its corporate financing for optimal wealth distribution and return generation, which is pivotal for ensuring a company's long-term financial health and sustainability.

Meanwhile, corporate finance helps companies to maximize their shareholder value by increasing profitability and share price. As it helps them to identify and evaluate growth opportunities by analyzing the financial feasibility of new projects as well as assessing the impact of those projects on their financial positions, corporate finance as a result enables companies to also gain a competitive advantage through a string of financial decisions, such as investing in new technologies, mutual funds, real estate, or acquiring and merging with other business entities, which allow them to outperform over their competitors.