What is corporate finance?
The corporate finance is the field of finance that deals with how companies manage their capital structure and financing and investment decisions to increase the value of a company. The primary objective of the corporate-financier is to amplify shareholder value by implementing strategies and utilizing short and long-term financial planning while balancing the profit and risk. Individuals working in the corporate finance departments manage and analyze a company’s economic activities and make capital investment decisions.
Examples of corporate funders’ decisions include consideration of investment decisions, how to pay for investments, how to obtain capital, and when shareholders can receive cash as dividends. Corporate finance is also related to investment banking. The investment bank tests the company’s financial requirements and raises the appropriate capital for these needs. Corporate finance may also refer to the money raised to create, grow or purchase a business.
Corporate finance includes two main sub-disciplines. The first is the capital budget, which provides for choosing which projects to invest in and what the investment should look like, whether it is in the form of equity or debt. Working capital management is the second sub-discipline. It deals with managing a company’s cash from current assets to liabilities, short-term borrowing, and inventories.
Three Duties of Corporate Finance
The field of corporate finance involves various tasks and can be categorized into three critical activities:
1. Investment and capital budget
The investment and capital budget require corporate financiers to determine where to invest the company’s long-term capital assets. These investments come with high risks but bring the highest returns. Therefore, corporate financiers analyze the various investment opportunities through a comprehensive financial analysis.
The financial analysis defines:
- Capital expenditures
- Expected income from investment
- Projects that should be part of capital budget
- Available cash flow from prospective projects
The corporate financiers use a financial model during the decision-making process to test the economic impact of a project in the future and compare it to the financial model of other projects. The analyst will provide an internal rate of return (IRR) with a net present value (NPV) to compare potential projects to make a best financial decision.
2. Capital Financing
The capital financing involves making optimal decisions when a company is financing projects through debt, equity, or both. A company can generate money to fund capital expenditures or investments, including issuing debt securities or selling company stock.
A critical part of this process is balancing the sources of financing – debt and equity. Excess debt can lead to default, while too reliant on equity can dilute the value of underlying investors. The company’s financier should lower the weighted average cost of capital (WACC) to strengthen the company’s capital structure continually.
3. Dividends and Return on Capital
This duty tasks corporate directors with deciding what to do with the company’s excess profits. They can give dividends to shareholders as share buybacks or dividends, or they can choose to keep the additional earnings for future acquisitions or operational requirements.
They can use the profits as financial support to expand the company, making it the ideal source of funds because it avoids more debt and does not reduce the value of equity that can occur when funds are issued from shares.
Jobs in corporate finance
Corporate finance offers many career paths and areas of specialization that you can consider. Here are some corporate finance jobs ranked from lowest to highest paying.
1. Credit manager
Essential Duties: Credit managers create credit scores and forecast risks to determine creditworthiness. These professionals must handle loan approval or rejection, negotiate loan terms, file loan application records and follow up on loan renewals and debt settlements with clients. The credit managers are also responsible for complying with regulations and developing, reviewing, and updating the company’s credit policies.
2. Corporate Finance Manager
Essential Duties: The primary responsibility of a corporate finance manager is to maximize the ultimate opportunities for the organization. They identify and secure mergers and acquisitions while investing large sums of money.
Corporate finance managers must also advise, meet goals, and generate investment capital. Other duties include negotiating contracts, using economic models to forecast outcomes, and liaising with lawyers, accountants, regulators, and other financial experts.
3. Management accountant
Essential Duties: These professionals collect and analyze financial data for internal use. The role entails helping the company manage its investment portfolio, supporting financing, and budgeting. Management accountants must also conduct risk assessments and evaluate company performance and account procedures.
4. Financial Officer
Essential Duties: The Finance Officers support colleagues, clients, and stakeholders through financial and administrative responsibilities. The role entails preparing budgets, managing records, processing invoices, and preparing balance sheets. Economic officials must also reconcile daily, monthly, and yearly transactions. In addition, they are responsible for interdepartmental communication in financial and accounting matters and support the finance manager.
5. Financial Analyst
Essential Duties: Financial analysts create financial forecasts by tracking operational reports and metrics. They analyze financial data and develop economic models to make optimal decisions. The role includes analyzing past findings, recognizing trends, performing variance examines, and making recommendations. Other duties include directing project cost analysis and enforcement of policies and procedures.
6. Corporate Finance Partner
Essential Duties: Corporate finance partners must conduct comprehensive financial assessments to test, interpret and review potential projects. The role entails gathering relevant market research, developing complex economic models, and writing presentation reports.
Essential Duties: Treasurers monitor the company’s finances. Responsibilities include sales and fundraising, planning, budgeting, bookkeeping, and record keeping. In addition, treasurers handle the company’s fixed assets and shares and prepare financial reports.
8. Cost Analyzer
Essential Duties: Cost analysts analyze company expenses to develop reports for better management. Also known as cost specialists or cost accountants, the role involves collecting financial data such as labor costs and inventory purchases to analyze where inefficiencies are. Other duties include conducting cost estimates and reviewing budgets.
9. Investor Relations Manager
Essential Duties: Investor Relations Managers oversee communication between company management and investors. The role includes answering inquiries, attending meetings, and giving control and crisis management feedback. Investor relations managers must also conduct data analysis, plan investor events, give presentations, and collaborate with equity research analysts.
Essential Duties: Controllers develop financial procedures, policies, reporting systems, and controls to enhance the return on financial assets. They monitor and implement these policies to protect the assets and economic decisions. In addition, monitors must comply with federal, state, and local laws while anticipating future legislation. Reaching budget goals, preparing special reports, and interpreting financial statements are other duties of this role.