Fundamental Concepts of Corporate Finance

When we use the word corporation, we must know that we are talking about companies. The main goal of companies is to provide highly valued products and services; leading to satisfied customers. Here we will ensure to help you with understanding the fundamental concepts of corporate finance; in an easy and relatable manner. Now talking about the efficiency of the whole mechanism of satisfied customers; it depends on enough cash generation; which is required to compensate the investors who have pooled in to provide the necessary capital.

The question is- How can you make all the analyses regarding the value of projects and its volume of investors required?

The answer is for sure: Expertise in Finance. Thus, the fundamental concepts of corporate finance will guide you with how financial decisions are made for a business enterprise; based on the tools and analysis used; eventually enabling firms to maximize their corporate value along with effective management of their corporate risks.

The initial step towards understanding corporate finance is to understand the types of corporations. Have a look below:

Fundamental Concepts of Corporate Finance

As you’ve had a look at the different types which function in the real world; there’s one thing common amongst them all: The primary object of profit maximization. However, firms that are enlisted on the stock exchange are always on the watch for investors; as their aim for the firm is value maximization as well. A higher intrinsic value of the firm is like a good brand image; thus, bringing more investors to pool in the capital and allowing the firm to prosper further. This goal is fulfilled by maximizing shareholder value which in return is to maximize the company’s stock price through effective financial planning.

All these obvious aims of a corporation cannot be fulfilled without a deep understanding of the fundamental concepts of corporate finance.

Some of the main features of corporate finance include

What determines a firm’s value?

Fundamental Concepts of Corporate Finance

In simple terms, a company’s ability to make cash right now and the potential to make more in the future. It is mainly determined through the financial assets of a firm, the timings of the cash flow as well as the risk aversion of investors.

Using these main factors, managers tend to answer the following question:

How to enhance our firms’ value?

Mainly through three main factors as mentioned previously:

  1. Increase the size of cash flow
  2. More frequent cash receiving
  3. Reducing risk

Common concepts like the ones mentioned below are important in corporate finance and so let’s give you an idea:

Financial securities

Financial securities are also known as financial assets. This term is mainly used to describe bonds, stocks, and money market securities; as well as other instruments that provide the owner right to future benefits, following the set conditions. The table below can help you get an idea of what its mainly about.

Fundamental Concepts of Corporate Finance

Major Financial institutions

A company dealing with money or any financial feature is a financial institution such as a bank.

Fundamental Concepts of Corporate Finance

Intro to Financial markets

Like we mentioned securities, here we trade with securities and not only in one market but there are quite many as you can see below. Every capitalist economy runs on these financial markets as they play a vital role in the whole process

Fundamental Concepts of Corporate Finance

More like an intro to corporate finance overview has been presented while; A further in-depth view of financial management will be given regarding corporate finance; as this was just an opening to the real world of Corporate finance. We will further learn how to calculate the value of money and play with money wisely; to make more out of it every day.

Give this a read for understanding market systems further: Out of the 3 economic systems, what kind of economic systems now prevailing worldwide?