Large corporations need data insights that can help it manage its financial activities and make decisions like shareholder’s dividends issue, proposals of investment options, managing of liabilities, assets and capital investments which are short-term and many more areas which are crucial to the running of corporate functions.
Corporate Finance actually accounts through foresight for managing sources and funds to enable the best returns on shareholder assets both for the long and short terms.
The basic difference between corporate and business finance pertains to the segments they operate in and the size and purpose of investments. While business finance refers to aspects of finance of business itself, the work encompasses all aspects of firms which may be partnership, joint-stock or such and size could be from small firms to large companies. Activities can include selling and buying of assets, fundraising from various sources, and so on. Corporate finance, on the other hand, is about how corporate finance is handled. For example, monitoring finance, deciding on when to issue dividends, making profitable short-term investments, planning fund resources and so on.
Why Do Financial Analysis?
Financial analysis typically involves analyzing and evaluating businesses, projects, budgets, and other requisite factors to decide the performance, stability and suitability of the plans of any organization. Investments in any monetary form are typically assessed based on such reports and analysis to check if it is a viable option, whether one could justify the investment, whether if it has sufficient funding, what is the solvency of assets position, and its present liquid-assets. Normally financial analysis uses financial statements, income statement, company balance sheet, cash flow statement, and one or more methods for analysis. The financial ratios and transactional data of the company vis-a-vis its competitors are also instrumental in the process of financial analysis. This then helps evaluate trends in the economy, locate suitable investment opportunities, tweak long-term plans, gauge financial policy, and advice business activity.
Corporate and investment finance
As a financial analyst, your analysis is useful for corporate foresight and is based on comparison and calculation of the ROI, rate of return internally, present nett values, and more depending on the financer’s norms. This research and analysis strategy is useful when investment decisions are based on such foresight or require capital financing. A comparison of future, past, and present performances based on present outstanding liabilities, profit margins, gross income, internal return rates, nett values, and financial ratios allows for meeting regulator-norms, budget-decisions, factoring market trends, inventory control, assessing marketing plans and cashing-in on industrial growth opportunities.
Investment sectors generally use an analyst to research, probe, assess and evaluate investment-based issues through financial analysis. This approach may be top-down or bottom-up. Opportunities are first identified in the top-down approach involving the macro-economic comparative approach of performing sectors to decide the best performers in the sector. Then the bottom-up approach matches the company requirements using financial statements, ratios and performances studies over a few years to drill-down to the future and anticipated profits and performance which form the basis of evaluation for investment.
The research and financial analysis mode may be fundamental or technical depending on the usage of tools and parameters judged. Technical analysis uses tools like trends, moving-average ratios, and other quantitative parameters for its basis of evaluation while fundamental analysis uses factors like stock prices comparison, earnings per share, and such parameters.
One must learn a bit about the importance of corporate finance and its scope to appreciate its importance. Corporate finance has well-defined phases of operation.
1. The Planning of finances stage:
Here is where the insights are exploited to decide and plan effectively the finances of the company. Decisions need to be taken on how much finance is needed, how it will be sourced, where it will be invested, would the investment bring in profits, how much is anticipated profits and such to decide on a firm plan-of-action.
2. The capital raising stage:
This is a crucial stage and decisions here will involve assessment of company assets for sources to fund investments. To raise sufficient capital a company may decide to sell shares, issue debentures and shares, take bank loans, ask creditors to invest etc. Thus it has serious financial implications on profit and liquidity being related to the short-term funding and managing arrangements of the company to finance long-term investments in business expansion, additional infrastructure etc.
3. The investments stage:
Investments can be either on working capital or fixed assets. Fixed capital is used for financing the purchase of machinery, infrastructure, buildings, technological upgrades, property etc. The working capital is required for raw-material purchases, running expenses of the company, salaries, overheads and bills etc. There is a lot of data analytics and foresight required before making such investments and companies will raise funds only when they have a well-justified investment plan with good ROI before raising and providing capital for such investments. It is an important stage in the process and relates to excellent planning and managing of assets which directly impact the company’s health and performance.
4. Risk management and financial monitoring:
Once invested, the science of constant monitoring is required to ensure the fructification of the strategy and action plan. Risk-management aims to reduce and mitigate the undertaken risks of investments and forms a part of the on-going monitoring process. A lot of technology is involved with complex tools suites and technologies being deployed to provide minute-by-minute assessments of prices and its fluctuation, risk assessment, market trends, and monitoring of the debtor and creditor positions. The ultimate goal is to ensure higher-returns for the investors.
In parting, data is at the heart of financial analysis and corporate finance. The type of analysis depends on why do the analysis, what you are comparing, the ratios used and the targeted results. To learn more about corporate finance the easiest way is to do a professional course from a reputed institute like Imarticus which offers the best curriculum and ensures you learn how to practically implement your knowledge. They also educate you on the latest futuristic technologies, have well-trained and certified industry-drawn instructors and enable the best certifications like the CFA for you. This will give your career, resume and job prospects a huge boost.