Corporate Finance Introduction
Money makes a business go and that money comes from different sources, namely equity and debt. Corporate finance is the study of sources of finance and how to use the money raised to add maximum value to the shareholders' wealth.
It discusses topics such as:
- Models for calculation of cost of common stock, cost of preferred stock and cost of debt;
- Calculation of weighted average cost of capital and its use in investment appraisal techniques such as net present value, internal rate of return, profitability index, payback period, etc.;
- Accounting for risk in investment appraisal techniques using sensitivity analysis, scenario analysis, etc.;
- Decision about whether to declare a dividend or whether reinvest the money in business;
- Working capital management: management of inventories, receivables and cash;
- Calculation of investment performance valuation parameters such as ROI, ROE, etc.
- Financial risk management using derivatives and other techniques
Corporate finance managers are one of the most common users of financial accounting information and they need to coordinate with other functions of the business such as production, marketing, administration, etc.
Written by Obaidullah Jan, ACA, CFA and last revised on