Corporate finance: a necessity
Corporate finance or financial management is essential to promote economic development. Therefore, corporate finance or financial management can be summarized as the analysis of financial data to make an investment, financing, and daily management decisions that maximize the profits of the company.
Corporate finance in general.
Corporate finance or financial management is the field of finance relating to corporate financial decisions. It is considered to be the analysis of the value created by the company, the assets, and risks relating to operational performance, as well as the definition of the choices of investment, financing, and cash management policies.
Its main purpose is, however, to analyze and maximize the value of the firm for its shareholders envisaged over a long period. As a result, corporate finance or financial management has the role of bringing the banker to offer business advisory services or intermediation so that it finances its development.
Why is corporate finance important?
The financial system is the central nervous system of market economies.
However, it would be impossible to manage the economic relationships necessary for a decentralized economy characterized by a high level of division without a banking system.
It is with this in mind that corporate finance intervenes in the promotion of economic development. Indeed, corporate finance or financial management is an engine of economic growth, in the sense that the leaders of a large company rely on it before financing any project.
As a result, it can promote economic development by helping to maximize the value of the company by helping to maintain the level of financial performance and by helping to maintain financial balance.
Role of financial management.
Financial management aims to provide the company with a maximum and sufficient profit in order to repay the borrowed funds. It is, therefore, part of the financial logic of maximizing shareholder wealth.
In other words, financial management helps the manager of the company to make choices that will maximize the company’s return when making an investment decision (choosing which project to undertake), when making a financing decision (deciding the mode of financing of projects) and during its daily management.
It is, therefore, useful for the manager of a large company in terms of investment decisions, financing decisions, and daily management.
The big enterprises.
Banks finance large companies with credit. They grant medium/long-term loans but also overdrafts, short-term credits (for example factoring: the bank “buys” invoices and is responsible for collecting them).
Also, banks offer business management services to optimize their cash flow by placing surpluses in banking products, financial investments, or monetary investments.
Banks are an essential intermediary between businesses and the capital markets. They, therefore, issue and place securities on behalf of these large companies, also assuming a part of the counterparty risk.
Banks provide financial services to large companies of greater technical complexity: risk management (management of arrears, fixed-rate debt, variable rate, exchange risk), support for exports.
The banks are also responsible for so-called top-of-the-line operations (LBO), transfer of companies, the listing of the company on the stock market, opening of its capital, issue of bonds, etc.
Small and medium businesses and very small businesses.
Small and medium-sized enterprises and very small enterprises represent approximately 97% of the business population. They provide between 60 and 70% of net job creation, and they play a particularly important role in the marketing of innovative techniques or products.
Corporate finance is a crucial part of the business of financial institutions. However, access to credit is not the same for all businesses.