Most of you, who are familiar with Corporate Finance, must be aware that corporate finance is

nothing but managing the required funding and its sources. CF is also concerned with overseeing
and optimizing the proficiencies of the capital structure to enhance the value of the company.
One of the main objectives of corporate finance is to maximize the shareholder value in both
short and long term. Lets find out about the nature and scope of CF.

Scope of Corporate Finance

Capital investment decisions are an important part of corporate finance. These decisions include

Deciding whether the dividends should be offered to shareholders or not

Sanctioning or rejecting proposed investment. If the investment is approved, it is also to be
decided whether the company should pay with debt of equity or both.
Managing of short term assets and liabilities, investments, inventory control and other short term
financial issues by the financial manager
Corporate finance understands the financial problems of a company and prevents them
beforehand. It also deals with the financial aspects, promotion and administration of new
enterprises.

Nature or Principles of Corporate Finance:

Corporate finance is based on the following three principles:

The Investment Principle: According to this principle, the funds of an organization should be
invested in such a way to derive maximum return on investment. This investment should be
made at acceptable and minimum hurdle rate which depends on the projects debt and equity.
The riskier the project is; the higher will be the hurdle rate.

The Financing Principle: According to this principle, one should choose the ratio of debts and
equity in such a way so as to attain maximum return on investment and to match the assets
financial nature. The corporate finance manager has to analyze how to attain the optimum
financial mix of debt and equity for the organization.

The Dividend Principle: According to this principle, when a business reaches a saturation point
where cash flow surpasses the required fund, the corporate finance manager needs to search for
alternative sources like dividends, stocks and assets to maintain a balance between the cash flow
and required funds.