Introduction
This provides essential support for companies that enable them to make choices effectively toward financial health and a proper strategic direction. Generally, corporate finance can take several forms of activities since one investment choice may determine funding alternatives based on the same motive-increased shareholder value. Some must know the underlying philosophy for anyone to get themselves engaged in business management or perhaps investment analysis and any type of financial consulting practice. The following discusses a variety of fundamental concepts underpinnings of corporate finance.
- Maximization of Shareholder Value
At the core of corporate finance is the objective to create value for the shareholder. The concept suggests that a company should have objectives that are intended to enhance shareholder wealth. Such concentration on value maximization frequently guides some significant decisions in an organization, including investment, financing decision, and even dividends policy. If shareholders hold value in most cases, it offers avenues for the growth as this is driven on a platform of great investments.
- Investment Decisions
Investment decisions, or capital budgeting, form a core function of corporate finance. Companies have to make judgments about how viable an investment opportunity is as well as its expected returns
. The techniques of NPV and IRR are used for determining the contribution of an investment positively to the value of a company. NPV calculates the difference in terms of the current value for inflowsvers
us outflows in cash, and IRR refers to that discounting rate at which the investment NPV would be equal to zero. These kinds of choices will allow organizations to screen investments based on strategic organizational priorities.
