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Introduction to Corporate Finance || HSC || SP || Rapid Revision Notes

 IIntroduction to Corporate Finance

Meaning of Corporate Finance: 

         Corporate finance deals with the raising and using of finance by a corporation. It deals with financing the activities of the corporation, capital structuring and making investment decisions. 

            Henry Hoagland expresses the view that "corporate finance deals primarily with the acquisition and use of capital by business corporation." 

            It includes financial planning, study of capital market, money market and share market. It also covers capital formation and foreign capital. Even financial organisations and banks play vital role in corporate financing. 

Importance of Corporate Finance: 

  1. Helps in Decision Making 
  2. Helps in Raising Capital 
  3. Helps in Research and Development 
  4. Helps in Smooth Running of Business 
  5. Brings Co-ordination between Various Activities 
  6. Promotes Expansion and Diversification 
  7. Managing Risk 
  8. Replace Old Assets 
  9. Payment of Dividend and Interest 
  10. Payment of Taxes and Fee
Factors affecting Working Capital Requirement:
  1. Nature of Business
  2. Size of Business 
  3. Volume of Sales 
  4. Production Cycle 
  5. Business Cycle 
  6. Terms of Purchase and Sales 
  7. Credit Control 
  8. Growth and Expansion 
  9. Management ability 
Capital Structure:
            A company can raise its capital from different sources. i.e. owned capital or borrowed capital or both. The owned capital consists of equity share capital, preference share capital, reserves and surplus. On the other hand, borrowed sources are debentures, loans, etc. A combination of different sources are used in capital structure. 
            Capital structure means 'mix up of various sources of funds in desired proportion'.
 
Components of Capital Structure:
        1. Equity Share Capital                 (Fluctuating Dividend) 
        2. Preference Share Capital           (Fixed Dividend) 
        3. Retained Earnings 
        4. Borrowed Capital                      (Fixed Interest) 
                1) Borrowed Capital 
                2) Term Loans

Difference between Fixed Capital and Working Capital


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Location: Shrirampur, Maharashtra, India

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