What is the Definition and Fundamentals of Corporate Finance?


Any economic activity of varying magnitude and scale requires finance. In initial stages of the business, borrowing funds personally or from available savings are commonplace.

But once the organisation expands, it is always advisable to consider professional and systemised financing options tailored as corporate finance.

Financing is required not only for starting the business but also for its sustenance in the long run.

Funding of corporation and the various actions that management adopts for enhancement of its value is covered under corporate finance.

This not only focuses on the capital structure but also such an assessment that would prioritise and distribute financial resources.

It helps in the maximisation of the business value with adequate planning and investing resources along with balancing profitability and risk.

Fundamental principles of corporate finance

The three basic principles include investment principle, financing principle, and dividend principle.

  1. Investment principle

Business resources have to be allocated efficiently to ensure that it not only provides revenue opportunities but also scope for savings.

The management may have to undertake working capital decisions, for instance, the extent of credit days which may be allotted to the customers. To that effect, the business may avail working capital loan to fund business operations.

Corporate finance also takes into account the projected returns of the planned investment to determine whether such an investment is feasible, to begin with.

  1. Financing principle

In most cases, businesses are funded with equity or debt or with both. It is essential to retain the right amount of capital by the optimal mix of equity, debt, and other financial instruments.

This principle of corporate finance also considers the impact on a business’s intrinsic value due to the change in its capital structure, both in the short term as well as in the long term.

The optimal financing mix, which may be either long-term or short-term financing, would minimise the established hurdle rate.

III. Dividend principle

When businesses reach the growth and maturity stage in its life cycle, the generated cash flow exceeds the expected hurdle rate, from which dividend may be paid to the investors or owners.

At this juncture, the management needs to decide whether the excess cash should be paid as a dividend, or the same to be left in the business.

If the business is in full swing, and there remains the possibility of cash running out soon, the venture may be at risk. In such a situation, companies have the option of availing Flexi-business-loans.

How to approach the idea of corporate finance?

Irrespective of the scale of the business, it has to raise and deploy capital for its survival and growth.

Entrepreneurial finance would require the identification of sources from which funds may be raised, expansion of business, planning the future course of action as well as managing money and ensuring economic viability.

Various financial institutions offer Business Loans up to Rs.30 lakh in just 24 hours. The funds availed can be utilised to meet the capital requirements of the business apart from other operations.

These are hassle-free unsecured business loans with simple eligibility criteria. Reputed NBFC offers such loans at attractive rates of interest as well as multiple other borrower-friendly features.

For instance, they provide pre-approved offers which make the availing loans easier and faster. These offers are extended on various financial products, including business loans, home loans, personal loans, among others.

As the loan borrower and even perhaps the business owner, you should consider the eligibility criteria required to avail such credits in the first place. Lenders will consider that the applicant should be within 25 years to 55 years of age, and the business is operational for a minimum of 3 years.

Corporate finance will cover the capital requirements of Small and Medium Enterprises (SMEs) which may be met by business loans. The fund would enable it to grow its operations and reach economy of scale easily.

Leonard Moore
Leonard Moore mission is to conduct in-depth research that leads to new ideas in creating informative articles. His focus is on innovation in technology and creativity.

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