What is corporate finance?
Corporate finance aims to increase a company's value through effective financial management. It includes strategies for funding operations and growth and tools for balancing risk and profitability.
How does corporate finance work?
Corporate finance is about enhancing a company's financial health. It manages a company's financial activities, including budgeting, investing, and capital allocation.
In a real estate company, for example, it determines the capital needed for asset purchases and identifies efficient funding sources. These decisions impact the company's capital structure, i.e., using debt, equity, or both. It also involves managing working capital optimally.
Corporate finance also includes decisions about profit distribution. The primary goal is to maximize profits. Despite some similarities with corporate accounting, the main difference is that corporate finance focuses on planning and implementing financial strategies for future performance, while accounting analyses and reports on past financial performance.