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MBA in Leadership and Management
CORPORATE FINANCE
Corporate finance is the area of finance that deals with how companies manage their money. Especially when it comes to funding their business and making decisions to grow and become more valuable. It focuses on how a company raises money (capital), how it uses that money, and how it plans for the future while trying to keep risks under control.
One of the main goals of corporate finance is to increase the value of the company. To do this, the company must make smart financial decisions about where to invest, how much money to borrow, and how to balance the risk of losing money with the opportunity to make more profits. In simple terms, corporate finance is about smartly managing investments, funding sources, and profits to ensure the company grows while balancing risk and reward.
A key part of corporate finance is the capital structure which means how a company gets the money it needs. This money can come from two main sources: debt (like loans or bonds) and equity (like selling shares of the company). A good balance between debt and equity is important. If a company borrows too much, it becomes risky for investors, but taking on some risk can also lead to higher growth.
Corporate finance involves three key activities:
1. Investments and Capital Budgeting: This is about deciding where to invest the company’s long-term capital to get the best returns. Companies analyze potential investments using financial tools like Internal Rate of Return (IRR) and Net Present Value (NPV) to choose the best projects.
2. Capital Financing: This focuses on how to raise money for investments, whether through debt or equity. The goal is to balance debt and equity to avoid too much risk or dilution of shareholder value.
3. Dividends and Return of Capital: Corporate managers decide whether to reinvest profits back into the business or return them to shareholders through dividends or share buybacks. If a company can’t earn a higher return than its cost of capital, it’s better to return excess capital to shareholders.
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