Introduction to Corporate Finance Homework Help
Corporate finance is a subpart of finance that is all about how a corporation deals with its funding sources, accounting, investment decisions, and capital structuring. In order to maximize the value of the shareholder corporate finance is used along with long- and short-term financial planning and also by implementing various strategies. The activities of corporate finance range from capital investment to tax considerations.
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The Three Important Principles of Corporate Finance
Investments & Capital Budgeting
Investment is an asset that is required to build wealth and also save money from income or appreciation. The concept of investment is related to obtaining an additional source of income or gaining more profit from the investment over a specific period of time. On the other hand, capital budgeting is a process that is used by businesses to assess major projects or anything related to investment. For instance, making a new project would be requiring capital budgeting before it gets approved.
Capital Financing
The way a person raise money to launch their business and set up the cash reserves in a situation when the revenue is low or dries up. The two main types of capital financing is- selling ownership and taking on debt.
Dividends and Return of Capital
The return of the capital takes place when an investor obtains the portion of their original investment but it is not considered as income or gains from the capital. The return of the capital also reduces the adjusted cost basis of the investors. The moment the adjusted cost had been reduced to zero, any consequent return will be taxable as a capital gain. On the other hand, dividends are the payments an organization makes so that they can share the profit with the stockholders. The dividends are paid on regular basis and this is a way that investors earn a return from investing in a stock.
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Key Objectives of Corporate Finance
Income Margins
The net margin of the profit or simply the net margin is used to measure the net income and how much profit can be generated as a percent of the revenue. It is basically the ratio of the net profits in regard to the revenues for a company or segment of the business. The net margin of profit is expressed as a percentage but can also be represented in decimal form. The net margin of profit portrays how much each dollar in revenue is collected
Sales and Promotions
Sales and promotion is a marketing strategy in which a company arranges for a temporary campaign or makes an attempt to increase the interest in its product or services. There are many reasons as to why a company uses sales promotion, the main reason being to increase sales and attract customers. Awareness of the products is also a main motive behind the sales promotion.
Financial Reporting System
Financial reporting is a process that uses the accounting practice and also uses the financial statement in order to reveal the financial information and performance of the company in a particular period of time (quarterly or annually). A financial reporting system is an understanding of how much money a person has, from where the money is coming, and where the money will go. It helps in making informed business decisions.
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Understanding the Concept Corporate Finance
Capital Budgeting
Capital budgeting is a process that is used by businesses to assess major projects or anything related to investment. For instance, making a new project would be requiring capital budgeting before it gets approved. As a part of capital budgeting, any organization evaluates the project’s lifetime cash inflows and outflows in order to determine the potential returns so that the targeted benchmark is met.
Time Value of Money
The time value of money is a concept where the sum of money is valued more than the same sum because of its earning potential in the interim. This is a core principle of finance, the amount of money that is present in the hand is more useful than the sum that needs to be paid in the future. The time value of money is also known as the present discounted value.
Cost of Capital
The cost of capital is the return that an organization needs so that it can justify the cost of a capital project such as purchasing new equipment or constructing a new building. The cost of capital is both debt and equity that is based on the company’s existing capital structure.
Working Capital Management
Working capital management is a business strategy that helps companies to operate efficiently by monitoring and using their current assets and liabilities.
Measures of Leverage
The measure of leverage is the use of fixed costs in an organization's cost structure. The measure of the sensitivity of net income to changes in unit sales that is equal to DTL = DOL × DFL.
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How Important is a Company’s Capital Structure in Corporate Finance?
- Increase in value of the firm:
- Utilization of available funds:
- Maximization of return:
- Minimization of cost of capital:
- Solvency or liquidity position:
- Flexibility:
- Undisturbed controlling:
What are the Career Paths in Corporate Finance?
- Financial Analyst.
- Cost Analyst.
- Credit Manager Cash Manager.
- Benefits Officer.
- Real Estate Officer.
- Investor Relations Officer.
- Treasurer.
What are the types of corporate finance?
Short-Term Corporate Finance
Short-term finance is the financing needs for a small period of time, generally, it can be less than one year. In the business, it can also be called working capital financing. This kind of financing is needed is required because of the unequal flow of cash into the business, the seasonal pattern of business.
Long-Term Corporate Finance
Long-term corporate finance can be described as a financial instrument with a maturity that exceeds one year (bank loans, bonds, leasing, and other forms of debt finance, public and private equity instruments).
Conclusion
Thus, it can be concluded by saying that corporate finance is a subpart of finance that is all about how a corporation deals with its funding sources, accounting, investment decisions, and capital structuring. In order to maximize the value of the shareholder corporate finance is used along with long- and short-term financial planning and also by implementing various strategies.
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