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What are the functions of corporate finance?

All financial operations required to operate a business or a company are included in corporate finance. From the procurement of funds to the management of the funds' use, corporate finance is concerned with managing money in a business. The owner of a small business might be able to handle the finances on his or her own. On the other hand, large companies would have a finance department that has a Chief Financial Officer (CFO) and a team of finance professionals to manage the company's finances. If you need assistance with a corporate finance assignment, please visit our Corporate Finance Assignment help page, where one of our experts will gladly help you. Corporate finance's primary goal is to increase shareholder value. The CFO's job is to make sure the organization has enough operating funds. Corporate finance also deals with mergers, acquisitions, and other activities that have an effect on a company's finances.

What is the concept of corporate finance?

The preparation and management of a company's financial capital are what corporate finance is all about. It is also known as financial accounting, and it entails the planning, coordinating, directing, and managing of the enterprise's financial operations, such as procurement and fund utilization.

Corporate Finance Functions

Corporate finance roles are classified into two categories:

  • Traditional Methodology

  • A New Approach.

According to the modern strategy, corporate finance includes both the procurement of funds and their efficient distribution and use. A modern method is an empirical approach to a company's financial problems.

As a result, corporate finance can be divided into four decision or roles in the modern approach:-

  • Capital budgeting decisions or investment decisions

  • Decisions on financing or capital structure

  • Decisions on dividends or benefit distribution

  • Decisions on liquidity or working capital management

Investment Decisions

The commitment of financial capital to long-term profitable prospects is the focus of investment decisions. It refers to a company's choice of long-term assets in which to invest its funds. These decisions require allocating financial resources to the firm's anticipated operations. It is also known as a capital budgeting decision, and it entails determining the number of financial resources needed. Capital budgeting decisions govern capital expenditure preparation, coordination, and control (long-term expenditure).

Decisions on Funding

The financing mix, capital structure, and leverage all play a role in financing decisions. If a company has agreed on which assets to invest in, the next issue is how these assets will be funded.

There are mainly two funding options: equity and debt. Shareholders or the firm's owner are equity capital providers that offer capital with no fixed or guaranteed return. Shareholders assume the possibility of receiving no compensation, which is referred to as residual equity. They have a say in decision-making and are in control of the company's affairs.

Capital Structure

This term refers to the combination of equity and debt. The financing decision is about deciding how much of these sources to use to fund a company's investment needs. Since the cost of capital for debt and equity differs, a fiancé manager must look for the best funding combination or capital structure (where the market value of the shares is maximized). To fund the firm's properties, a finance manager must determine how much debt and equity should be collected. The cost of capital of debt and equity funds is critical in deciding this combination or proportion.

Dividends Decisions

The dividend decision is the third big financial decision in corporate finance. Dividend decisions are made to compensate the firm's owners, i.e., the shareholders, for their investment in the business. The dividend is paid to shareholders from the firm's operating income (net operating profits after taxes) after all costs and expenditures have been met. The dividend decision should be analyzed in the context of a company's funding decision.

When it comes to coping with profits, a company has two options:

  • Dividends are one way to transfer profits to shareholders.

  • They may be kept in the company and are referred to as retained earnings.

Liquidity Decision

Maintaining a firm's liquidity status is critical for avoiding insolvency. The profitability, liquidity, and risk of a company are all linked to current asset investments. It is critical to invest ample funds in current assets in order to preserve a trade-off (balance) between profitability and liquidity.


We've read about the most important aspects of corporate finance, and we hope that you'll find this knowledge helpful in your everyday life. If you have any questions, please visit our page Corporate finance homework help, where our experts will be happy to assist you.


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