Corporate Finance and Its Association with Investment Banking

Investment Banking

The ground of corporate finance deals with the decisions of investment taken by corporations along with the tools and the analysis required for taking such decisions. The main aim of corporate finance is reducing the financial risks and at the same time enhancing the corporate value of the company. Adding on to it, corporate finance also deals with receiving the maximum profits on the invested capital of the company. The main concepts of corporate finance are applied to the difficulties of finance encountered by all type of firms.

Specializing in mixed-use properties and apartment buildings, Eugene Bernshtam’s company focuses on investment banking, management, and development, consulting services, and repositioning under performing real estate assets. The discipline of corporate finance can be split into the long term and the short term techniques of decisions. The investments of capital are the long term decisions connecting to the projects and the methods required to fund them. Contrariwise, the capital management for working is deliberated as a short term decision that deals with the short term asset balance and current liabilities. The main focus here rests on the cash, management of inventories, and the borrowing and lending on a short term basis.

Financial decisions, the tools and analysis that are required to reach these conclusions is what corporate finance is all about. The aim of this is to increase the value of the company while concurrently reducing any financial risks. In addition it supervises that the company gets maximum profits on whatever schemes they have invested in. Corporate finance can be classified into long and short term decisions.

Investment Banking

Corporate finance is also connected with the field of investment banking. Here, the part of the investment banker is the assessment of the various projects coming to the bank and making suitable investment decisions regarding them.

The Capital Structure:

According to Bernshtam, for achieving the set goals of corporate finance, a proper finance structure is required. Therefore, the management has to project a proper structure that has an optimal combination of the different finance options that are obtainable.

Usually, the sources of finance will comprise of a mix of debt as well as equity. If a project is bankrolled through debt, it results in causing an accountability to the concerned company. Therefore in such cases, the flow of cash has several implications irrespective of the success of the project. The financing done by equity carries a lower risk regarding the commitments of the flow of cash, but the result of this is the ownership and the dilution of the earnings. In the case of debt finance, the cost involved in equity finance is also higher. Therefore, it is understood that the finance done through equity, counterweights the reduction in the risk of cash flow. Hence the management has to have a mix of both the options.

The decisions of capital investments are the long term decisions of corporate finance that are linked to the fixed assets and the capital structure. By making investments in the projects that have a positive yield, the management of corporate finance attempts to maximize the firm’s value. The finance options for such projects have to be done in an appropriate manner.

Tahir Ismail

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