Business is essentially about setting up a venture, the success or failure of which relies heavily on how well it managed its finances. In business terms, finance is a generic term for things about the financial management, development, and allocation of funds and investments. In particular, it mainly deals with the issues of why and who an organization, business or government get the funds needed for its growth or maintenance, especially as regards investment. Finance is basically concerned with managing financial risk. Its objective is to ensure that the organization makes a good return on the funds used in its operations or maintenance, and does not fall short of the required funds.
The field of finance is extremely wide and covers a broad spectrum. It actually starts from the financial institutions and banks, moving outwards to include other aspects like corporate finance, insurance and pension financing, as well as commercial lending. The main factors driving the industry are therefore globalization, financialization and globalization of markets. These factors have changed the role of finance in bringing forward options for business firms. Earlier, a business firm would either seek external financing or adopt internal procedures to raise money for its operations. Today, finance has become an integral part of the business decision-making process itself.
Today, a business firm can look forward to make its own decisions to increase the probability of its profits and reduce the risk associated with its investments. Financial risk management plays a critical role in corporate finance. It helps to identify opportunities in the financial markets and take advantage of them, so that the overall profits of the business can be increased and risks minimized.
Finance has helped businesses to obtain necessary funds for their growth and development. In fact, many businesses that have depended on traditional financing have suffered great losses, mostly as a result of poor cash flow management. This is because the lack of proper fund management has resulted in poor cash generation and poor cash flow management. Proper fund flow management is the most important aspect of all venture capital funding activities. This has helped businesses to build strong balance sheets and achieve the goals set by the Boards of Directors.
Corporate finance professionals are required today more than ever before, especially in times of economic downturn and turbulence. The primary reason for this is that the main goal of such professionals is to make better financial managers. For instance, if a firm wants to obtain long term sustainable investments, its financial managers will have to make better investment decisions. On the other hand, if the firm wants to obtain short term sustainable investments, then its managers will have to make better financing decisions.
The primary objective of a financial manager is to make capital provision decisions according to the available resources. Therefore, the primary objective of corporate finance professionals is to maximize the available funds and minimize the risk associated with such provision. The first step in doing so is calculating the present value of the firm’s assets and liabilities. This can be done by various techniques like the ratios of the current value of firm assets to current liabilities, the book value of firm assets, or the net worth of the firm. All these methods are meant to calculate the present value of funds.
Proper cash flow forecasting is another important aspect of good corporate finance management. This is usually performed by the financial managers after receiving all necessary information from the firm. First of all, the financial managers need to obtain all necessary information like current cash flow, working capital, free cash, etc. After getting this information, the financial managers can start calculating the probabilities of generation of future cash flows. This is the most important part of proper cash flow forecasting, as it directly affects the capital budget of the firm.
Many finance managers believe that the best way to solve the finance problems is through a zero-sum game theory. They believe that firms should engage in a zero-sum trade-off with other financial institutions. The purpose of this zero-sum game is to limit the risk of losses and maximize the profits of the firm. The financial managers can make use of short-term financial instruments such as debentures, preference shares, debt securities, and common stocks to satisfy the zero-sum game. These financial instruments can be very helpful for those firms that do not face any immediate liquidity crisis, but they have long term needs such as funds for expansion and maintenance of their business.