Financial planning is very important in corporate finance.
Corporate finance is an area of economics focused on the management of a company's financial resources . This field of finance covers issues such as capital structuring, financing and investments of a company.
The concept refers to the monetary decision making of a corporation . These are those actions that are carried out with the purpose of increasing the valuation of companies, thus increasing the benefits obtained by shareholders.
What is corporate finance?
To understand what corporate finance is, it is important to analyze the two terms that make up the expression. The idea of finance refers to flows: goods, capital, investments. Corporate , meanwhile, is an adjective referring to something related to a corporation: a company (generally large) or an organization whose control is in the hands of its members (as occurs with shareholders who decide on the direction of a company). .
It can be said that corporate finance includes all those tools and decisions that have a financial effect on a company. In order to increase capital and maximize the value provided to shareholders, multiple variables must be analyzed.
The corporate finance office or sector of a company, therefore, is responsible for the administration and allocation of economic resources . Its functions include fundraising, project feasibility analysis, and the design and execution of investment policies and strategies.
Another way of understanding corporate finance is as a bridge between the entity and the capital markets . This is key for financing, investments and even for the firm's operations.
In a broad sense, those with responsibility for corporate finances are responsible for making decisions related to investments and financing . In this way, they study how to add assets and how to obtain the funds needed for said acquisitions.
Managing corporate finances requires knowledge of international financial markets.
Most important aspects
Corporate finance requires taking into account multiple aspects for an administration to be successful. The financial analysis must be accurate for risk management in accordance with the needs of the company, which must have a healthy balance sheet and be profitable. Just as companies need to have working capital and cash flow, they also aim to distribute dividends and generate value for shareholders.
On the one hand, the balance between the search for profits and financial risk is transcendental. It must be considered that, as the promise of profitability of an investment grows, the risks increase.
Liquidity management is another issue that cannot be overlooked. A corporation needs cash or immediately available money to meet its daily obligations; However, that money that is reserved cannot be used for investment (there is an opportunity cost).
In corporate finance the time variable must also be considered. To dispense with the current use of money, interest or return rates that are sufficiently attractive are needed. Examining that payback period is very relevant.
Those responsible for a company's corporate finances must consider different possible financial scenarios.
The importance of planning in corporate finances
In finances it is always important to plan. Goals must be established and then direct actions toward that goal, managing resources and making decisions based on what is planned.
In this framework, the first thing to do is set objectives, both short and medium and long term. These objectives must function as a guide and must be at the center of the corporate strategy. Simultaneously, the budget must be defined. Although a budget always acts as a guide, it is essential to try not to deviate from what was planned. This avoids putting the financial status of the firm at risk.
Planning, of course, has to include periodic evaluations . In this way, the necessary changes can be introduced in the strategy to ensure that the objectives can be achieved.
The training
Corporate finance experts have studies in economic sciences. A graduate in Business Administration , for example, has the necessary knowledge to manage the corporate finances of a company.
However, there are studies that allow you to specialize specifically in this subject through corporate financial education. For example, Southern New Hampshire University in the United States offers a Master's Degree in Corporate Finance . According to the details provided by the institution, students learn about capital structure, mergers and acquisitions, short and long-term financing and other topics of interest.
The Universidad Siglo 21 ( Argentina ), meanwhile, offers a Specialization in Corporate Finance and Capital Markets . It is a proposal aimed at making financial decisions, with which the curricular design is aimed at those who wish to develop professionally in financial or banking services and management areas, for example.
At the Torcuato Di Tella University , also in Argentina , Corporate Finance is a subject of the Master's Degree in Finance where issues such as corporate bonds and debt financing are analyzed.
The Pontifical Catholic University of Chile , meanwhile, has a Diploma in Corporate Finance . This training revolves around debt instruments, financing structure and other elements that are very important for value creation.