Corporate finance involves managing a company’s financial activity, including investment banking, valuation, and mergers and acquisitions. Investment banking raises capital for business expansion through stocks, bonds, or securities. Valuation determines the market value of assets to be sold, while mergers and acquisitions combine assets and liabilities to form a larger company.
Corporate finance deals with the management and financial activity of a company. Some companies have a corporate finance office and employ financial experts to manage the financial business of the company. The basics of corporate finance include the involvement of investment bankers, determining the value of a company or its stock, and mergers and finance deals. All of these components work individually and together to help determine a company’s value and its ability to borrow or raise funds, enabling further business expansion.
Investment banking is one of the foundations of corporate finance and is primarily about raising cash needed to expand the business. For example, if a company wants to do business in another country, it may need to build a factory or office building there. A company will likely go to an investment bank which assists the company in raising capital. Such methods of raising money generally involve stocks, bonds or securities. The investment bank underwrites a company’s stock offering to the public through an initial public offering (IPO) or issues debt in the form of bonds.
Valuation is another basic component of corporate finance that is conducted when a company is about to sell a part of its organization, such as a division or subsidiary. A corporation has an obligation to its shareholders to determine the value of the assets to be sold. The valuation determines the current market value of the asset so that it can be used as collateral for the loan. For example, a company may sell its foreign subsidiary to obtain the money needed to finance research into a new product. The term valuation can also refer to the market value of a company’s stock based on the issuing company’s net assets and expected earnings.
Another important business dealing with the basics of corporate finance is mergers and acquisitions. When two companies combine their assets and liabilities to form a larger company, it is called a merger. The purpose of a merger is to join forces, allowing both organizations to help the new, larger company make even more money. A takeover is similar, except that a larger company will typically retain the previous name and identity by absorbing the smaller company into itself. When a smaller company is acquired by a larger company, the smaller company is usually established as a subsidiary or division of the larger company.
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