Why is Corporate Finance Important?

When it comes to investing in businesses or projects the overall vision of value creation is highly vital. A good investment is one that meets its financial and non-financial goals. This is where both corporate finance and strategy meet. Strategy lays out the vision and the guides the path, while corporate finance establishes the structure for completion of the set vision.

A good strategy is one which is coherent and consistent with the corporate finance structure. Not only must it make sense, but it must also be implemented. A good implementation of a strategy is critical for the long term success of any business venture. This is where corporate finance comes in to play. It lays out the financial structure for implementation of the strategy by providing a clear understanding of cost and revenue sources, resource allocation, cost control, etc. The two together will set up a good strategic business plan that has an equal focus on financial and non-financial values.

A successful corporate venture requires both corporate finance and strategy to be well developed in order to effectively achieve its goals on both ends of its operation. While corporate finance is more concerned with the financial values, strategy is more concerned with overall vision and implementation. Both are equally important and when combined together they provide a valuable base for any business venture. The main concept of corporate finance is the management of capital. This is accomplished by investing and raising capital for the future needs of the business as well as for short term ventures. As a part of this process, corporations must also manage their current assets and liabilities, which are basically their debts and credits. By managing these areas, corporations can effectively control their own financial health and evaluate how much money they need to stay in business.

Although corporate finance deals with monetary values and strategies, it is not limited to that area alone. Corporate finance also concentrates on non-monetary aspects such as business ethics, environmental issues, global trends, labor relations, government regulations and other factors that may affect the health of any corporation. Corporate strategy focuses more specifically on the direction and purpose of any corporation.

Many businesses put more effort on general corporate strategy than on more narrow areas, like financial strategy. Corporate strategic planning focuses on the concerns of building a company in a particular field. It seeks to help businesses compete in their verticals, or niches, especially by becoming independent player. It also works for the betterment of environment and people at large besides profit making aspect including parent body’s sustainability and assimilation into world market and its share consistency in it. Corporate financial management is concerned with all corporate resources including investments, current moneys, capital and any other tangible asset as well as intangible assets like relationship with clients and legal liability etc.

It is concerned with the management of these resources, including decisions on the allocation of capital and other resources to different projects or businesses. It is concerned with the amount, type and timing of capital investments and allocating financial resources over time. It seeks to maximize value for shareholders by investing in projects that are expected to provide a return in excess of their cost. It also seeks to minimize the cost of capital by making intelligent investment decisions.

Financial decision making is concerned with the allocation of financial resources over time, and is therefore concerned with discounting (i.e., adjusting future values for their anticipated worth at a point in time). Financial decision-making can be studied as part of corporate finance, which focuses on firm valuation and corporate governance; personal finance, which focuses on individuals; government finance, which focuses on government entities; or international finance, which focuses on multinational companies. Aspects common to all these fields include evaluating risk and return on investment (ROI), interest rates and inflation.

Overall, Corporate strategy is a long-term plan that defines the mission and goals of the corporation. The corporate strategy is made by the top management after careful study of market trends, competitors, employee satisfaction and other factors. Corporate strategy also includes a vision statement that gives a sense of direction to employees and stakeholders. The corporate strategy also includes broad guidelines for executing projects in support of the vision statement. In short, corporate strategy includes a companies direction, goals and vision based on analysis of many financial and non-financial factors. These factors are all linked to corporate finance at its core, which drives strategic development, while ensuring short, medium and long term goals of an organization are met.