Corporate finance is a subfield of finance that deals with how corporations address funding sources, capital structuring, accounting, and investment decisions. The main areas of corporate finance are:
1. Capital Budgeting: This involves making capital investments and deploying a company’s long-term capital. It includes identifying capital expenditures, estimating future cash flows from proposed capital projects, comparing planned investments with potential proceeds, and deciding which projects to include in its capital budget.
2. Capital Financing: This involves sourcing capital in the form of debt or equity. A company may borrow from commercial banks and other financial intermediaries or issue debt securities in the capital markets through investment banks. A company may also choose to sell stocks to equity investors, especially when it needs large amounts of capital for business expansions.
3. Working Capital Management: This involves managing assets and liabilities to operate efficiently. It deals with the day-to-day demands on business cash flows as well as with long-term financing goals.
These components are essential for businesses to fund their operations, maximize profits, and minimize costs. Corporate finance departments are responsible for managing their firms’ financial activities and capital investment decisions. The chief financial officer (CFO) often oversees a company’s corporate finance activities.