What is Corporate Finance? Fundamentals, Principles, Features of Corporate Finance

What is Corporate Finance? Meaning of Corporate Finance

Corporate finance is the finance required for running a corporation or joint-stock company. Today no business can survive without finance. Finance is the life blood of any organization; no economic activity can be carried out without finance. Finance is required throughout the working life of a company. It acts as a lubricant keeping machinery of business in a continuous state of activity.

Definition of Corporate Finance

According to B.O. Wheeler the definition of corporate finance are: ↓

“Corporate finance / business finance is that business activity which is concerned with the acquisition and conservation of capital funds in meeting the financial needs and overall objectives of business enterprises.”

According to Guthmann and Dougale the definition of corporate finance are: ↓

“Business finance can be broadly defined as the activity concerned with planning, raising, controlling and administering of funds used in the business.”

Fundamentals, Principles, Features of Corporate Finance

Fundamentals of corporate finance are given in the diagram below. ↓

Fundamentals, Principles, Features of Corporate Finance

Image credits © Manoj Patil.

Essentials, characteristics, basics, principles of corporate finance are: ↓

  1. Raising of Funds,
  2. Utilization of Funds,
  3. Types of Finance,
  4. Relationship With Other Functional Areas,
  5. Legal Requirements,
  6. Dynamic In Nature,
  7. Proper Planning and Control,
  8. Achieving Objectives.

Features of corporate finance are discussed below. ↓

1. Raising of Funds

Corporate finance is concerned with raising of funds. If the organization is new, people are reluctant to invest unless they are confident about the credibility of promoters. However, if the organization is old and reputed one funds can easily be raised. The funds can be raised by way of loans and advances from financial institutions, preference / equity share capital, debentures; public deposits, etc.

2. Utilization of Funds

In corporate finance, the utilization of the fund plays an important role. In order to achieve business objectives i.e. maximizing profits, market share, etc. The funds should be used in best possible ways for financing fixed assets, working capital needs, Investment in bonds.

3. Types of Finance

In corporate finance, there are three types of finance. A business firm requires different types of finance. It requires funds for meeting short term as well as long-term needs. Medium term finance is also required for medium term needs.

4. Relationship With Other Functional Areas

In corporate finance, finance is the life blood of business. It is required for major business activities and is closely connected with other functional areas like production, purchase, marketing, personnel, etc. These other operational areas can run smoothly only with the support of finance.

5. Legal Requirements

In corporate finance, there are no legal restrictions on the finance collected by a sole trading concern or a partnership firm. However, a company has to take permission from the controller of capital issue regarding the capital to be collected.

6. Dynamic In Nature

Corporate finance is dynamic in nature. Creativity on the part of finance managers brings success to the organization. Finance managers need to be more innovative towards organization.

7. Proper Planning and Control

Corporate finance planning is required in order to procure funds and put them to proper use. It control is required to ensure that the funds are productively used. Hence, periodic monitoring of finance function is necessary.

8. Achieving Objectives

In corporate finance, proper utilization of funds helps a company to achieve its objectives. Every company has certain objectives. The finance function ensures that the funds are used properly.

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