Elements of Business Finance

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Corporate finance is related to the financial decisions within a business organization.
Corporate finance is related to the financial decisions within a business organization. (Image: Jupiterimages/Photos.com/Getty Images)

Business finance, or corporate finance as it is often referred to, relates to the financial decisions within a business organization. Its main aim is to manage the capital available to the business structure in terms of investing, to ensure that the business is financed, to analyze the potential profits from product development and distribution and to estimate the working capital of the organization.

Investments

One of the main concerns of business finance is to estimate the abilities of the company to invest a part of its capital. Corporate finance analysts need to evaluate the financial state of company in terms of profitability and assets and to determine whether the organization can afford spending which can later gain profit. For example, many technology companies that have available financial capital invest in alternative energy production and are expected to gain significant profit in the long term.

Ensuring Financial Stability

Business finance is actively involved in estimating whether a business structure is financially stable. This is process of calculating the profits that the business has obtained after deduction of the expenses that have been made in relation to the production process. Financial experts need to determine whether the business can meet its financial needs relying solely on its own profits or external financing is required. For example, many banks are ready to offer business loans to businesses that need additional funds in order to further their business activity or to expand in production and service delivery.

Calculating Profits

Corporate finance is also focused on calculating the profits that a business makes and making prognoses as to the future development of a company. Financial analyzers would conduct research that would determine whether the business organization has achieved its main goals in terms of generated revenue and would give opinions on whether future business plans would deliver profits. For example, companies use the services of financial specialists in order to determine whether a course of action in their businesses would be beneficial in terms of profit.

Working Capital

Working capital refers to the available assets and liabilities a company has. Assets are the financial merits that can be converted to cash and liabilities are amounts of money that a company needs to pay out. The task of a corporate finance specialist is to determine whether the company, after paying out its current liabilities, would still be financially stable within its working capacity. Such a procedure is vital for the business operations and sustainability of a company. For example, Irish banks requested large amounts of money in a form of loans because their liabilities grossly exceeded their assets when the financial crisis hit the country, and many were unsustainable.

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