Shopping on line can be easy, simple and save you lots of money. It can also take a lot of your time, frustrate you, and result in unwanted purchases. Now the same can be said for regular high street shopping, but with the vast opportunity presented by the Internet it will pay you to spend a few minutes reading this and understanding how to better optimize your Corporate Finance shopping experience:

1. Compare - without doubt the biggest advantage that the Corporate Finance offers shoppers today is the ability to compare thousands of Corporate Finance at a time. This is a great thing, but not necessarily all the time! Too much can be daunting at times so take advantage of the great comparison sites and where possible let them do the hard work for you.

2. Research - if it has been said it will be on the internet. Ignorance is no longer a justifiable reason for buying the wrong thing. Take the time to research in detail everything that you could possible want to know about

3. Testimonials - don't know anybody that has bought a Corporate Finance? Wrong! If the Corporate Finance is good the internet will let you know. Use the Internet as a friend and get testimonials before you buy.

4. Questions - Got a question about Corporate Finance then search the Forums, FAQ's, Blogs etc. Don't be afraid to ask .....

5. Reputation - Never heard of the company selling Corporate Finance? Don't worry, no reason why you should know every company in the world, but you know someone that does! Use the internet to find out what people are saying about Corporate Finance and build up a picture of their reputation for sales, returns, customer service, delivery etc.

6. Returns - still worried that even after all of the above your Corporate Finance wont be what you want? Check out the returns policy. There is so much competition now that someone, somewhere is bound to offer the terms that you are comfortable with.

7. Feedback - happy with your Corporate Finance then let people know, after all you are depending on others people input in your buying decision, so why not give a little back.

8. Security - check for the yellow padlock on the Corporate Finance site before you buy, and the s after http:/ /i.e. https:// = a secure site

9. Contact - got a question about Corporate Finance, or want to leave a comment then check out the sites contact page. Reputable companies have them and respond.

10. Payment - ready to pay for your Corporate Finance, then use your credit card or PayPal! Be aware of companies that don't accept them, there may be genuine reasons but given the huge amount of choice you have when buying online there is no reason at all not to buy via credit card or PayPal.

Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to enhance valuation (finance) while reducing the firm's financial risks. Equivalently, the goal is to maximization the corporations' return on capital. Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.

The discipline can be divided into long-term and short-term decisions and techniques.Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with ownership equity or debt, and when or whether to pay dividends to shareholders. On the other hand, the short term decisions can be grouped under the heading "Working capital management". This subject deals with the short-term balance of assets and liabilities; the focus here is on managing cash, inventory, and short-term borrowing and lending (such as the terms on credit extended to customers).

The terms Corporate finance and Corporate financier are also associated with investment banking. The typical role of an investment banker is to evaluate investment projects for a bank to make investment decisions.

Capital investment decisionsThe framework for this section is based on Notes by Aswath Damodaran at New York University's Stern School of Business Capital investment decisions are long-term corporate finance decisions relating to fixed assets and capital structure. Decisions are based on several inter-related criteria. Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate. These projects must also be financed appropriately. If no such opportunities exist, maximizing shareholder value dictates that management return excess cash to shareholders. Capital investment decisions thus comprise an investment decision, a financing decision, and a dividend decision.

===The investment decision===

Management must allocate limited resources between competing opportunities ("projects") in a process known as capital budgeting. Making this capital allocation decision requires estimating the value of each opportunity or project: a function of the size, timing and predictability of future cash flows.

Project valuation In general, each project's value will be estimated using a discounted cash flow (DCF) valuation, and the opportunity with the highest value, as measured by the resultant net present value (NPV) will be selected (see Fisher separation theorem). This requires estimating the size and timing of all of the incremental cash flows resulting from the project. These future cash flows are then discounted to determine their present value (see Time value of money). These present values are then summed, and this sum net of the initial investment outlay is the Net present value.

The Net present value is greatly influenced by the discount rate. Thus selecting the proper discount rate—the project "hurdle rate"—is critical to making the right decision. The hurdle rate is the minimum acceptable Return on investment on an investment—i.e. the Capital asset pricing model#Asset-specific required return. The hurdle rate should reflect the riskiness of the investment, typically measured by volatility of cash flows, and must take into account the financing mix. Managers use models such as the capital asset pricing model or the arbitrage pricing theory to estimate a discount rate appropriate for a particular project, and use the weighted average cost of capital (WACC) to reflect the financing mix selected. (A common error in choosing a discount rate for a project is to apply a WACC that applies to the entire firm. Such an approach may not be appropriate where the risk of a particular project differs markedly from that of the firm's existing portfolio of assets.)

In conjunction with Net present value, there are several other measures used as (secondary) Decision making#Decision making in business in corporate finance. These are visible from the DCF and include payback, internal rate of return, Modified Internal Rate of Return, Equivalent Annual Cost, capital efficiency, and Return on investment.

See also: list of finance topics#valuation, stock valuation, fundamental analysis

Valuing flexibility In many cases, for example R&D projects, a project may open (or close) paths of action to the company, but this reality will not typically be captured in a strict NPV approach. Management will therefore (sometimes) employ tools which place an explicit value on these options. So, whereas in a DCF valuation the expected value or average or scenario planning cash flows are discounted, here the “flexibile and staged nature” of the investment is Mathematical model, and hence "all" potential Moneyness are considered. The difference between the two valuations is the "option value" inherent in the project.

The two most common tools are decision tree (DTA) and Real options analysis:





===The financing decision===

Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. As above, since both hurdle rate and cash flows (and hence the riskiness of the firm) will be affected, the financing mix can impact the valuation. Management must therefore identify the "optimal mix" of financing—the capital structure that results in maximum value. (See Balance sheet, Weighted average cost of capital, Fisher separation theorem; but, see also the Modigliani-Miller theorem.)

The sources of financing will, generically, comprise some combination of Bond (finance) and Equity investment. Financing a project through debt results in a liability that must be serviced—and hence there are cash flow implications regardless of the project's success. Equity financing is less risky in the sense of cash flow commitments, but results in a dilution of ownership and earnings. The cost of equity is also typically higher than the cost of debt (see Capital asset pricing model and Weighted average cost of capital), and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk.

Management must also attempt to match the financing mix to the asset being financed as closely as possible, in terms of both timing and cash flows.

One of the main theories of how firms make their financing decisions is the Pecking Order Theory, which suggests that firms avoid external financing while they have internal financing available and avoid new equity financing while they can engage in new debt financing at reasonably low interest rates. Another major theory is the Trade-Off Theory in which firms are assumed to trade-off the Tax Benefits of debt with the Bankruptcy Costs of debt when making their decisions. One last theory about this decision is the Market timing hypothesis which states that firms look for the cheaper type of financing regardless of their current levels of internal resources, debt and equity.

The dividend decision In general, management must decide whether to invest in additional projects, reinvest in existing operations, or return free cash as dividends to shareholders. The dividend is calculated mainly on the basis of the company's unappropriated profit and its business prospects for the coming year. If there are no NPV positive opportunities, i.e. where Return on investment exceed the hurdle rate, then management must return excess cash to Equity investment - these Cash flow comprise cash remaining after all business expenses have been met. (This is the general case, however there are exceptions. For example, investors in a "Growth stock", expect that the company will, almost by definition, retain earnings so as to fund growth internally. In other cases, even though an opportunity is currently NPV negative, management may consider “investment flexibility” / potential payoffs and decide to retain cash flows; see above and Real options.)

Management must also decide on the form of the distribution, generally as cash dividends or via a Treasury stock. There are various considerations: where shareholders pay Dividend tax, companies may elect to retain earnings, or to perform a stock buyback, in both cases increasing the value of shares outstanding; some companies will pay "dividends" from Treasury stock rather than in cash. (See Corporate action.) Today it is generally accepted that dividend policy is value neutral (see Modigliani-Miller theorem).

==Working capital management==Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's Asset#Current assets and its Current liability. The goal of Working capital management is to ensure that the firm is able to continue its Operations management and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.

Decision criteria By definition, Working capital management entails short term decisions - generally, relating to the next one year period - which are "reversible". These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or profitability.





Management of working capital Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the Asset#Current assets (generally cash and cash and cash equivalents, Inventory and debtors) and the short term financing, such that cash flows and returns are acceptable.









Financial risk management Risk management is the process of measuring risk and then developing and implementing strategies to manage that risk. Financial risk management focuses on risks that can be managed ("Hedge (finance)") using traded financial instruments (typically changes in commodity, interest rates, exchange rates and stock). Financial risk management will also play an important role in cash management.

This area is related to corporate finance in two ways. Firstly, firm exposure to business risk is a direct result of previous Investment and Financing decisions. Secondly, both disciplines share the goal of creating, or enhancing, firm Value (economics). All large corporations have risk management teams, and small firms practice informal, if not formal, risk management.

Derivative (finance) are the instruments most commonly used in Financial risk management. Because unique derivative contracts tend to be costly to create and monitor, the most cost-effective financial risk management methods usually involve derivatives that trade on well-established financial markets. These standard derivative instruments include option (finance)s, futures contracts, forward contracts, and swap (finance).

See: Financial engineering; Financial risk; Default (finance); Credit risk; Interest rate risk; Liquidity risk; Market risk; Operational risk; Volatility risk; Settlement risk.

Relationship with other areas in finance Investment banking Use of the term “corporate finance” varies considerably across the world. In the United States it is used, as above, to describe activities, decisions and techniques that deal with many aspects of a company’s finances and capital. In the United Kingdom and Commonwealth of Nations countries, the terms “corporate finance” and “corporate financier” tend to be associated with investment banking - i.e. with transactions in which capital is raised for the corporation.Beaney, Shean, "Defining corporate finance in the UK", The Institute of Chartered Accountants, April 2005

Personal and public finance Corporate finance utilizes tools from almost all areas of finance. Some of the tools developed by and for corporations have broad application to entities other than corporations, for example, to partnerships, sole proprietorships, not-for-profit organizations, governments, mutual funds, and personal wealth management. But in other cases their application is very limited outside of the corporate finance arena. Because corporations deal in quantities of money much greater than individuals, the analysis has developed into a discipline of its own. It can be differentiated from personal finance and public finance.

Related Professional Qualifications Qualifications related to the field include:







References

See also



Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to enhance valuation (finance) while reducing the firm's financial risks. Equivalently, the goal is to maximization the corporations' return on capital. Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.

The discipline can be divided into long-term and short-term decisions and techniques.Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with ownership equity or debt, and when or whether to pay dividends to shareholders. On the other hand, the short term decisions can be grouped under the heading "Working capital management". This subject deals with the short-term balance of assets and liabilities; the focus here is on managing cash, inventory, and short-term borrowing and lending (such as the terms on credit extended to customers).

The terms Corporate finance and Corporate financier are also associated with investment banking. The typical role of an investment banker is to evaluate investment projects for a bank to make investment decisions.

Capital investment decisionsThe framework for this section is based on Notes by Aswath Damodaran at New York University's Stern School of Business Capital investment decisions are long-term corporate finance decisions relating to fixed assets and capital structure. Decisions are based on several inter-related criteria. Corporate management seeks to maximize the value of the firm by investing in projects which yield a positive net present value when valued using an appropriate discount rate. These projects must also be financed appropriately. If no such opportunities exist, maximizing shareholder value dictates that management return excess cash to shareholders. Capital investment decisions thus comprise an investment decision, a financing decision, and a dividend decision.

===The investment decision===

Management must allocate limited resources between competing opportunities ("projects") in a process known as capital budgeting. Making this capital allocation decision requires estimating the value of each opportunity or project: a function of the size, timing and predictability of future cash flows.

Project valuation In general, each project's value will be estimated using a discounted cash flow (DCF) valuation, and the opportunity with the highest value, as measured by the resultant net present value (NPV) will be selected (see Fisher separation theorem). This requires estimating the size and timing of all of the incremental cash flows resulting from the project. These future cash flows are then discounted to determine their present value (see Time value of money). These present values are then summed, and this sum net of the initial investment outlay is the Net present value.

The Net present value is greatly influenced by the discount rate. Thus selecting the proper discount rate—the project "hurdle rate"—is critical to making the right decision. The hurdle rate is the minimum acceptable Return on investment on an investment—i.e. the Capital asset pricing model#Asset-specific required return. The hurdle rate should reflect the riskiness of the investment, typically measured by volatility of cash flows, and must take into account the financing mix. Managers use models such as the capital asset pricing model or the arbitrage pricing theory to estimate a discount rate appropriate for a particular project, and use the weighted average cost of capital (WACC) to reflect the financing mix selected. (A common error in choosing a discount rate for a project is to apply a WACC that applies to the entire firm. Such an approach may not be appropriate where the risk of a particular project differs markedly from that of the firm's existing portfolio of assets.)

In conjunction with Net present value, there are several other measures used as (secondary) Decision making#Decision making in business in corporate finance. These are visible from the DCF and include payback, internal rate of return, Modified Internal Rate of Return, Equivalent Annual Cost, capital efficiency, and Return on investment.

See also: list of finance topics#valuation, stock valuation, fundamental analysis

Valuing flexibility In many cases, for example R&D projects, a project may open (or close) paths of action to the company, but this reality will not typically be captured in a strict NPV approach. Management will therefore (sometimes) employ tools which place an explicit value on these options. So, whereas in a DCF valuation the expected value or average or scenario planning cash flows are discounted, here the “flexibile and staged nature” of the investment is Mathematical model, and hence "all" potential Moneyness are considered. The difference between the two valuations is the "option value" inherent in the project.

The two most common tools are decision tree (DTA) and Real options analysis:





===The financing decision===

Achieving the goals of corporate finance requires that any corporate investment be financed appropriately. As above, since both hurdle rate and cash flows (and hence the riskiness of the firm) will be affected, the financing mix can impact the valuation. Management must therefore identify the "optimal mix" of financing—the capital structure that results in maximum value. (See Balance sheet, Weighted average cost of capital, Fisher separation theorem; but, see also the Modigliani-Miller theorem.)

The sources of financing will, generically, comprise some combination of Bond (finance) and Equity investment. Financing a project through debt results in a liability that must be serviced—and hence there are cash flow implications regardless of the project's success. Equity financing is less risky in the sense of cash flow commitments, but results in a dilution of ownership and earnings. The cost of equity is also typically higher than the cost of debt (see Capital asset pricing model and Weighted average cost of capital), and so equity financing may result in an increased hurdle rate which may offset any reduction in cash flow risk.

Management must also attempt to match the financing mix to the asset being financed as closely as possible, in terms of both timing and cash flows.

One of the main theories of how firms make their financing decisions is the Pecking Order Theory, which suggests that firms avoid external financing while they have internal financing available and avoid new equity financing while they can engage in new debt financing at reasonably low interest rates. Another major theory is the Trade-Off Theory in which firms are assumed to trade-off the Tax Benefits of debt with the Bankruptcy Costs of debt when making their decisions. One last theory about this decision is the Market timing hypothesis which states that firms look for the cheaper type of financing regardless of their current levels of internal resources, debt and equity.

The dividend decision In general, management must decide whether to invest in additional projects, reinvest in existing operations, or return free cash as dividends to shareholders. The dividend is calculated mainly on the basis of the company's unappropriated profit and its business prospects for the coming year. If there are no NPV positive opportunities, i.e. where Return on investment exceed the hurdle rate, then management must return excess cash to Equity investment - these Cash flow comprise cash remaining after all business expenses have been met. (This is the general case, however there are exceptions. For example, investors in a "Growth stock", expect that the company will, almost by definition, retain earnings so as to fund growth internally. In other cases, even though an opportunity is currently NPV negative, management may consider “investment flexibility” / potential payoffs and decide to retain cash flows; see above and Real options.)

Management must also decide on the form of the distribution, generally as cash dividends or via a Treasury stock. There are various considerations: where shareholders pay Dividend tax, companies may elect to retain earnings, or to perform a stock buyback, in both cases increasing the value of shares outstanding; some companies will pay "dividends" from Treasury stock rather than in cash. (See Corporate action.) Today it is generally accepted that dividend policy is value neutral (see Modigliani-Miller theorem).

==Working capital management==Decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's Asset#Current assets and its Current liability. The goal of Working capital management is to ensure that the firm is able to continue its Operations management and that it has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.

Decision criteria By definition, Working capital management entails short term decisions - generally, relating to the next one year period - which are "reversible". These decisions are therefore not taken on the same basis as Capital Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or profitability.





Management of working capital Guided by the above criteria, management will use a combination of policies and techniques for the management of working capital. These policies aim at managing the Asset#Current assets (generally cash and cash and cash equivalents, Inventory and debtors) and the short term financing, such that cash flows and returns are acceptable.









Financial risk management Risk management is the process of measuring risk and then developing and implementing strategies to manage that risk. Financial risk management focuses on risks that can be managed ("Hedge (finance)") using traded financial instruments (typically changes in commodity, interest rates, exchange rates and stock). Financial risk management will also play an important role in cash management.

This area is related to corporate finance in two ways. Firstly, firm exposure to business risk is a direct result of previous Investment and Financing decisions. Secondly, both disciplines share the goal of creating, or enhancing, firm Value (economics). All large corporations have risk management teams, and small firms practice informal, if not formal, risk management.

Derivative (finance) are the instruments most commonly used in Financial risk management. Because unique derivative contracts tend to be costly to create and monitor, the most cost-effective financial risk management methods usually involve derivatives that trade on well-established financial markets. These standard derivative instruments include option (finance)s, futures contracts, forward contracts, and swap (finance).

See: Financial engineering; Financial risk; Default (finance); Credit risk; Interest rate risk; Liquidity risk; Market risk; Operational risk; Volatility risk; Settlement risk.

Relationship with other areas in finance Investment banking Use of the term “corporate finance” varies considerably across the world. In the United States it is used, as above, to describe activities, decisions and techniques that deal with many aspects of a company’s finances and capital. In the United Kingdom and Commonwealth of Nations countries, the terms “corporate finance” and “corporate financier” tend to be associated with investment banking - i.e. with transactions in which capital is raised for the corporation.Beaney, Shean, "Defining corporate finance in the UK", The Institute of Chartered Accountants, April 2005

Personal and public finance Corporate finance utilizes tools from almost all areas of finance. Some of the tools developed by and for corporations have broad application to entities other than corporations, for example, to partnerships, sole proprietorships, not-for-profit organizations, governments, mutual funds, and personal wealth management. But in other cases their application is very limited outside of the corporate finance arena. Because corporations deal in quantities of money much greater than individuals, the analysis has developed into a discipline of its own. It can be differentiated from personal finance and public finance.

Related Professional Qualifications Qualifications related to the field include:







References

See also





Corporate Finance Qualification
The Corporate Finance qualification is uniquely practical and attractive, targeted at industry leaders of today and tomorrow.

Corporate banking, commercial finance, international banking ...
The Royal Bank of Scotland is a leading Corporate Finance provider in the UK. Commercial finance, corporate banking and financial markets lie at the heart of our innovative ...

Corporate Finance
For the last 20 years, Corporate Finance has written about the ways that companies have found to manage their capital and cash more efficiently.

Commercial Finance, Business Loan, Commercial Mortgage, Corporate ...
NatWest serves customers with an annual turnover of £1m to £25m, and offers wide range of Commercial Banking and Corporate Finance services such as Business Loans and Commercial ...

Corporate Finance Associates
Worcestershire based commercial finance broker dealing with a range of different types of financial products.

Corporate Finance - Bank of Scotland Corporate
Find out about Corporate Finance from Bank of Scotland Corporate, a range of services including Structured Finance, Joint Venture and Project Finance to suit your business needs

Fusion Corporate Finance
Corporate advisors. Offers details of services specialised in plus contacts. Offices in Leicester and Birmingham.

Corporate Finance - Accountancy Age
There's a lot more to it than just private equity buyouts – raising funds, restructuring and deal advice provided by accountancy firms to businesses

PKF - Corporate Finance Services. Corporate / Business Finance Advice ...
Our business finance experts provide a range of services relating to raising private equity, sourcing funding, mergers and acquisitions and general corporate business finance.

Corporate Finance Services
Management buy outs, Management buy ins, mergers, acquisitions, disposals, due diligence, business grooming, financing advice, pricing analysus and share valuations

 

Corporate Finance



 
Copyright © 2008 Hintcenter.com - All rights reserved.
Home | Terms of Use | Privacy Policy
All Trademarks belong to their repective owners. Many aspects of this page are used under
commercial commons license from Yahoo!