Finance:

Finance is the art and science of managing money. Finance affects all individuals,
businesses, and governments in the process of the transfer of money through institutions,
markets, and instruments.

Financial Services
Financial services is the area of finance concerned with the design and delivery of advice and
financial products to individuals, businesses, and government.

Managerial Finance
Managerial finance encompasses the functions of budgeting, financial forecasting, credit
administration, investment analysis, and funds procurement for the firm. Managerial finance
is the management of the firm's funds within the firm. This field offers many career
opportunities, including financial analyst, capital budgeting analyst, and cash manager (Note:
Other answers possible).

To have an insight about corporate finance it is pertinent to know what is corporate finance
and what is the role of the financial manager? The second more important thing is to know
the goal of financial management.

CORPORATE FINANCE
To start any type of business following three factors are taken into account:-
1 Long Term Investment
Long Term investment is also referred to as Capital Budgeting. In the Capital
Opportunities

Budgeting phase the financial manager strives to dig out investment opportunities that
Dig out

will bring valuable return over the cost to acquire that asset. This means the value of
the cash flow generated by an asset should exceed the cost of that asset.

It is also noteworthy that the type of investment opportunity that the management is
Type of Business

considering depends upon the nature of company's business. The financial manager
should also concentrate upon the size of the investment, timing for receiving the
future cash flows and risk involved in such investment should also be considered.
 2 Capital Structure:
Capital structure is related with the financing decision to be taken by the financial
manager. In this phase of decision making financial manager is concerned with the
ways in which the company will obtain the long term financing in support of its long
term investment. You may have observed that the capital structure is a specific
Capital mix

mixture of debt and the equity which are used as financing sources. To make up the
capital structure, financial manager is concerned to select the best mixture of debt and
equity. Whatever the mixture is selected by the financial manager it will affect the risk
and the value of the firm.

On the other hand financial manager is also concerned with selection of least
expensive funds for the company. It is to be determined as to what portion of cash
flows go the creditors and to the share holders. However, to select among the given
financing alternatives is the hot issue under capital structure. The types of costs
cost of funds

associated with obtaining loans should also be evaluated by the financial manager so
as to assess the viability of the financing mode. There are events that a company may
have to obtain very expensive and exotic loans from various lenders present in the
market. Therefore, their suitability should be matched against the investment the
company is going to do.

3 Working Capital Management

The third important factor of corporate finance is the management of working capital.
Short term assets
and liabilities

Working capital is concerned with short term assets and short term liabilities such as
money payable to the suppliers. The management of working capital is a routine
activity of the financial manager to have an insight about the liquidity position of the
company.

The management of working capital involves the minimum limit of cash availability,
collection
Limit of

size of inventories, what should be the collection policy and after how many days
policy
cash,

funds are to be disbursed to the vendors or suppliers.

 Board of Directors

Chairman and Chief

Executive Officer

President and Chief

Operations Officer

Vice President Vice President Vice President

Marketing Finance (CFO) Production

Treasurer Controller

Cash Manager Credit Manager Tax Manager Cost A/C Manager

Capital Expenditures Financial Planning Financial A/C Data Processing

Manager Manager
TYPES OF ORGANIZATIONS:
1 Solepropritorshep
2 Partnership
3 Corporation/Joint Stock Company

THE AGENCY PROBLEM AND CONTROL OF THE CORPORATION

So far we have observed that financial manager acts in the best interest of the stockholders. It is a fact
that in large corporations ownership is spread over a huge number of stockholders.
AGENCY RELATIONSHIP:
The relationship between management and stockholders is called an agency relationship. Such a
relationship exist whenever someone (principal) hires another (agent) to represent his or her interest.
In all such relationships there is a possibility of conflict of interest between principal and the agent.
Such a conflict is called agency problem.

FINANCIAL MARKETS:
Primary advantages of corporate sector are:
*easily and quickly transfer of ownership * money can be raised easily
Both these advantages can be enhanced significantly by the existance of financial markets

Cash Flows to and From the Firm

B. Firm invests in A. Firm issues securities Financial Markets

assets Short-term debt
F. Dividends Long term debt
Current Assets E. Reinvested Cash Flows and debt payments Equity Shares
and Fixed Assets

C. Cash flows from firm's assets

D. Government
Other stakeholders

1 Primary Markets
Primary market refers to original sale of securities by governments and corporations.
In primary market corporation is the seller of securities to raise money for the corporations.
 Corporations engage in two types of primary market transactions:
i. Public Offerings
ii. Private Placement
2 Secondary Markets.
Secondary market are those in which securities are bought and sold afer the original sale.
Secondary markets can be divided into two markets
i. Dealer Markets
ii. Auction Markets
New York Stock Exchange (NYSE)
National Association of Securities Dealers Automated Quotation (NASDAQ)