Finance

Every decision made in business is financially important, as well as decisions involving the use of money. Broadly speaking, everything that a business does can be tied to and associated with corporate finance. However, the word corporate finance is just the wrong name. Images of corporate finance ring in huge conglomerates like GE or Bank of America, when in fact the right name should be business finance which includes small and medium sized public and private companies, since the basic fundamentals remain exactly the same, whether looking at big, publicly traded companies or small, independently run companies. Every business has to commit their assets wisely, identify the optimum combination of debt and equity to finance these investments, or return cash to the owners if new investment returns cannot meet or exceed the cost of capital.

If your company’s goal is to maximize firm value, it follows that firm value must be linked to three corporate finance choices – cash flow, growth and risk. The link between these choices and firm value is observed by computing the present value of all expected future cash flows, discounted back at a rate that shows both the risk from the projects of the company and the financing mix used to finance them. Investors develop expectations about future cash flows based on current cash flows and expected future growth, which in turn depends upon the quality of the firm's projects and the level of reinvested back into the company. These financing decisions influence the value of the firm through the discount rate and the anticipated cash flows.

Corporate finance makes its way through essentially every decision made by a company; though many will argue otherwise, that their division is what generates revenue and growth. Setting all arguments aside, everybody should find and understand a few parts of corporate finance. Marketing managers, logistics managers, human resource administrators and information technology managers make corporate finance decisions daily and often don't realize this. Understanding a few basic corporate finance concepts will help them actually make better decisions.

Is your company growth rate and profitable lower than your peers? Give us a call at 916-629-4660.