The end goal for all corporations is to grow and offer their consumers constantly improving products and services while at the same time keeping costs low. From the perspective of making the most of their capital, corporate finance is extremely useful for companies to help them succeed in these goals. The corporate finance department of a company will look at the road ahead and see how they can extract the best value.
The leader of the corporate finance department is known as the Chief Financial Officer or CFO, in short. It is the responsibility of the CFO to meet the financial goals of a company which will ultimately be reflected in the price of a company’s stock. The CFO must worry about a whole range of complex financial problems and issues and ensure that these issues have a positive impact on the performance of a company.
Depending on the Nature of a firm, there are around five to ten major financial functions that have to be managed in harmony to carry out the company’s corporate finance functions. Companies that are hiring for future leadership positions in corporate finance will often have new employees work in jobs that are ‘rotational’ in nature for about two to three years. The idea is that these future leaders will need to gain exposure to several different financial functions in order to work closely with or to actually become the Chief Financial executives who have to deal with a complete system of ideas. There are two main sub functions of Corporate Finance. These are: The Capital investment Function and The Financing Function.
One of the goals of the corporate finance team is to maximize their resources and make the most profit out of their investments. This is known as the Capital Investment Function. The team must decide where they should invest the company’s capital and where they will get the maximum returns from. This kind of investment strategy covers everything from acquiring a new company to strengthen the portfolio of the corporation, to looking at investing in new products in new markets.
Whether it is a small or a large investment the company is trying to make, their strategy will depend heavily on cash flows and expected cash flows. They will be paying a lot of attention to the Net Present Value of their investment proposition as well as the Internal Rate of Return that the investment is going to give them. Firm’s will continue to be successful in their investment decisions as long as they pursue projects where their internal rate of return is more than the market rate of return and the Net Present Value of the investment is greater than zero.
The second function of the corporate finance team is to raise capital for the corporation’s constantly evolving needs as well as their continuous operating costs. The CFO is in charge of deciding at what stage the general investing public should be approached through a public offering of shares. The investing public will let go of current cash and invest in the company for returns that they will get from the company by ways of dividends or even the price of a share rising.
