Corporate finance is the area of finance dealing with the sources of funding and the capital structure, the actions that managers take to increase the value of the firm to the shareholders.
The primary goal of corporate finance is to maximize or increase shareholder value. Although it is in principle different from managerial finance which studies the financial management of all firms, rather than corporations alone.
- Investment analysis (or capital budgeting) is concerned with the setting of criteria about which value-adding projects should receive investment funding, and whether to finance that investment with equity or debt capital. Working capital management is the management of the company’s monetary funds that deal with the short-term operating balance of current assets and current liabilities.
- The focus here is on managing cash, inventories, and short-term borrowing and lending (such as the terms on credit extended to customers).
The primary goal of financial management is to maximize or to continually increase shareholder value. Maximizing shareholder value requires managers to be able to balance capital funding between investments in projects that increase the firm’s long term profitability and sustainability, along with paying excess cash in the form of dividends to shareholders.