It is no surprise that the term ‘Corporate Finance’ is not generally well understood, because even the accountants seem to think that it has three meanings. Broadly speaking these are:
Corporate Finance – the Money
Every business needs finance. Start-up finance, finance for expansion, finance for working capital, finance for special projects, finance for new investments.
Some of this finance will be ‘permanent’ or ‘long term’, and this is usually provided by shareholders as ‘Equity Capital’. An entrepreneur setting up a new business may find willing shareholders among family and friends, or for larger amounts, a venture capital fund, or business angel network. As the business grows it may consider an IPO (Initial Public Offering) on the Stock Market. As long as the business remains profitable the Stock Market would be a reliable source of finance for the future.
On an ongoing basis, the business will rely on various sources of short-term and medium term finance to ensure the smooth running of its operations. This is available from banks and other financing institutions. This type of finance is treated as ‘borrowing’ or ‘debt’ and the repayment, including interest charges is legally enforceable, so it carries higher risk to the borrowing company than equity capital.
Corporate Finance – the Business Function
Every business organization has a department that is responsible for maintaining the accounting records. This is usually referred to as the Finance or Corporate Finance Department. As businesses grow this department expands, to provide financial data to all other areas, and this is used to support decision making, efficient resource allocation, expenditure control, and performance measurement.
Heading up this department will be the CFO (Chief Financial Officer), a member of the company board, and usually acting as deputy to the Chief Executive. In large multinational companies the department will be split into major functional areas:
- Financial Accounting, which deals with the daily routine recording of transactions with customers, suppliers, and bankers, and the preparation of the annual financial report for publication.
- Management Accounting, which is responsible for effective collection and communication of accounting and statistical information to support control and decision making throughout the business, at all levels.
- Treasury, which is a specialist function responsible for ensuring that finance is available for a range of strategic, tactical, and operational needs. This will include the maintenance of working capital, new investment plans, cash flow management in domestic and foreign currencies, dividend payments to shareholders, and the management of all financial risks.
Corporate Finance – the Skills and Knowledge
The staff in the finance department who are, or will eventually become, managers have undertaken academic study, and have achieved degrees and/or professional qualifications in various subjects that are within the general title of ‘Corporate Finance’. In their roles as finance managers they will be applying their expertise in corporate finance, and professional judgement, to tackle or resolve accounting and finance issues as they arise, some examples of which are:
- Understanding and recording complex transactions and reporting them accurately and fairly.
- Applying suitable techniques to determine an appropriate level of investment in working capital.
- Identifying suitable sources of finance to meet the company’s short, medium, and long term needs.
- Ensuring that the mix of equity and debt in the capital structure is cost-effective.
- Determining a suitable level of dividend to pay to shareholders that is a fair compromise between their expectations, and the company’s cash flow needs.
- Preparing and evaluating new investment proposals to ensure that they will add value to the company.
- Setting up suitable ‘hedges’ to protect against foreign currency exchange rate risks.
Finance is essential for any business and as such this training programme will be of benefit to a wide range of delegates and as such is aimed at:
- Managers and those with financial responsibilities
- Financial decision-makers, whose techniques of decision-making and analysis will be improved through attendance
- Professionals acting upon the financial decisions of others, who will gain an appreciation for decision-making thereby ensuring shared values within the organisation
- Analysts whose role involves evaluating and identifying market and competitive trends
The GLOMACS course ‘Essentials of Corporate Finance’ will provide a comprehensive insight into most of the areas covered in this article. These will be explained in clear and plain language, and illustrated with exercises and case studies accessible for anyone with basic mathematical skills.
Key takeaways from this course include the following:
- You will be able to further improve your professional skills
- You will be able to make more informed and hence better financial decisions using various models and software
- Your increased financial and decision-making skills will increase your importance and ability to contribute effectively to your organization’s goals
- You will be better placed to liaise effectively with other departments on planning, forecasting, budgeting matters, financial and investment analysis