Definition: The Corporate finance is the area of finance dealing with sources of funding and capital structure of the corporations and actions that managers take to increase value of firm to the shareholders, as well as tools and the analysis used to allocate the financial resources.

The primary goal of the corporate finance is to maximize or increase the shareholder value. Although it is in the principle different from the managerial finance which studies financial management of all the firms, rather than the corporations alone, the major concepts in study of the corporate finance are applicable to financial problems of all kinds of the firms.

Investment analysis is concerned with setting of the criteria about which the value-adding projects should receive the investment funding, and whether to finance that investment with the equity or the debt capital. Working capital management is a management of company's monetary finances that deal with short-term operating balance of the current assets and the  current liabilities; focus here is on the managing cash short-term borrowing, inventories and lending (such as terms on the credit extended to customers).

The terms corporate finance and the corporate financier are also associated with the investment banking. The classic role of an investment bank is to evaluate company's financial needs and raise appropriate type of the capital that best fits those desires. Thus, the terms "corporate finance" and the  "corporate financier" may be associated with the transactions in which the capital is raised in order to develop, create, acquire or grow businesses.

IMPORTANCE OF CORPORATE FINANCE

 Research and Development: Corporate Finance is desirable for the Research and Development. Today, a company cannot survive without the continuous research and the development. The company has to go on making the changes in its old products. It must also invent the new products. If not, it will be getting automatically thrown out of market.

Motivating Employees: Manager and the employees must be continuously motivated to progress their performance. They must be given the financial incentives, such as higher salaries, bonus etc. They must also be given the non-financial incentives such as canteen facilities (eatery), transport facilities etc. All this requires the finance.

Promoting A Company: The Finance is needed for promoting a company. It is needed for preparing the Project Report, the Memorandum of Association, Prospectus, Articles of Association, etc. It is needed for purchasing the Land and Buildings, the Plant and Machinery and the other fixed assets. It is needed to purchase the raw materials. It is also needed to pay salaries, wages and the other expenses. In short, we cannot start a company without the finance.

Smooth Conduct of Business: Finance is needed for the conducting business smoothly. It is needed as the working capital. It is desirable for paying day-to-day expenses. It is needed for the sales promotion, advertising, distribution, etc. A company cannot run smoothly without the finance.

Expansion and Diversification: Expansion means to increase size of company. The Diversification means to create and sell the new products. Modern machines and the modern techniques are needed for the expansion and the diversification. Finance is needed for purchasing the modern machines and the modem technology. So, finance becomes compulsory for the expansion and diversification of a company.

OUTLINE OF THE CORPORATE FINANCE

Investment analysis: Investment analysis is the planning of value-adding, the long-term corporate financial projects relating to the investments funded through and affecting firm's capital structure. The Management must allocate firm's limited resources between the competing opportunities, which is one of most important focuses of the capital budgeting

Maximizing shareholder value: The prime goal of financial management is to maximize increase the shareholder value. Maximizing shareholder value requires the managers to be able to balance the capital funding between the investments in projects that enlarge firm's long term profitability and sustainability, along with paying excess cash in the form of dividends to the shareholders. Managers of the growth companies will use the most of firm's capital resources and the surplus cash on investments and the projects so company can continue to expand its business operations into future.

Return on investment: The Return on investment is a concept of an investment in some resource yielding an upward growth trend or the appreciation in value to investor. In purely the economic terms, ROI is used to calculate the profits gained in the comparison to capital invested. ROI is a broad method for the investment valuation, and may be employed using the different valuation approaches. One method is to compare investment value and its opportunity cost to other forms of the investments.

Growth Stock: A growth stock is a stock of a company that generates the substantial and the sustainable positive cash flow and whose revenues and the earnings are expected to increase at a quicker rate than average company within same industry. A growth company typically has some sort of the competitive advantage that allows it to fend off the competitors. The Growth stocks usually pay the smaller dividends, as company typically reinvests retained the earnings in the capital projects.

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