Corporate finance deals with the flow of capital, investment decisions, capital raising in an organization. Risk management, capital budgeting and external financing are the key functions of corporate finance which influences their financial decisions.
Corporate finances is the finance branch dealing with the capital structure of an organization. It emphasizes on funding sources, capital structuring, and investment decisions. Primarily, it is concerned with maximizing the shareholder's value through long and short term financial planning implementing various strategies. To reduce financial risks to corporate sectors, several functions of corporate finances plays essential role. Additionally, the ideas are used to boost the profit of the corporations. In this post, we highlight its few essential functions mentioned in Corporate Finance 3rd Edition Solutions Manual.
Critical functions of corporate finance
Although corporate finance deals with cash flow in corporate organization, it is incomplete without these critical functions mentioned below.
External financing by corporations
Whether its small or big corporations, they must usually must raise equity capital privately, investors, friends and family. These professionals are specialized to invest in high risk or high return business assets. Once the entity touches the certain point, they may decide to accept external financing in form of IPO (Initial Public Offering) of stock selling to outsiders and listing their shares in stock market. After this, business have the option of raising funds by selling additional stocks in the future. If you are a management students looking to understand the functions of stock trading, purchase the Corporate Finance Berk DeMarzo 3rd Edition Solutions Manual.
Capital Budgeting
Capital budgeting is another function of corporate finance, representing a firm’s financial manager’s essential activity. Managers evaluate the large investments in the first step of the capital budgeting process. The second step in this process when the company prosper in a competitive economy only be seeking out of the most promising products, processes, and services to consumers. Intel, General Electric, Shell, Samsung and Toyota are few firms who perform this function to raise their capital.
Risk Management
Business is the second name of risk, either you fall, or you raise. Earlier, risk management has been associated with natural disasters historically, due to which business firms introduced insurance products. It helps to manage those disaster exposures. In modern times, risk management function identifies measures and manages the risk exposures, including predictable business risks. These exposures can result from adverse interest rate movement, commodity price changes, and currency value fluctuations. It is considered the most sophisticated of all corporate finance practices. It attempts to quantify the sources and magnitudes of firms risk exposure and to decide whether to accept these risks or to manage them.
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