As India enhances its global engagements, the nation’s business landscape takes an impressive position on the world stage. According to the Edel man Trust Barometer Study, 44% of the public trust the growth potential of Indian businesses.
Indeed, the extremely potential market offers incredible opportunities for ventures to grow and thrive today.
Futuristic technology, skilled technical human resource, innovation, etc. play key roles in a business’ success. However, what remains as a critical requirement throughout is corporate finance.
Relatively a new term with an old concept, corporate financing refers to the several financial activities required to run a business. It primarily deals with capital structure, tools and analysis which aid in prioritizing and distributing financial resources.
The key purpose of corporate finance is to enhance shareholder value through strategic planning, resource implementation and risk and profitability balancing. It also helps owners avoid major financial mistakes in business.
- The retail credit market of India ranks as the 4th largest in emerging nations.
- The total funding of Indian start-ups saw a 108% growth in 2018.
- 77% of investors trust their financial services sector completely.
3 Corporate Financing Activities:
- Capital Budgeting or Investment Analysis
Investing and capital budgeting involves planning and extensive financial analysis on where to place the long-term assets.
It uses accounting tools to perform the following –
- Evaluate cash flows from the anticipated capital projects.
- Identify capital expenses.
- Compare planned investments with estimated revenue.
- Finalise projects worth investing in.
Capital budgeting helps an enterprise recognise where to spend money and where it can earn.
- Capital financing
Capital finance involves decision making regarding how to finance the capital investments using debt, equity or both. The company can sell stocks or issue debt securities to acquire long-term funding for major investments or expenses. An alternate option is to avail a business loan from prominent lending institutions.
Another significant concept is working capital management. It primarily manages short-term assets in relation to short-term liabilities. Working capital finance is the fund an organisation needs to cover its regular expenses. Whether small or big, owners must have the substantial working capital to keep an enterprise agile.
- Business loans
Business loans with high-value funding are tailored to address both long-term and short-term financial needs of an organisation. When availed from lenders like Bajaj Finserv, these are more flexible, require no collateral, have no end-use restriction and come with attractive features.
Eligible borrowers can apply for unsecured loans via online application. Bajaj Finserv also provides existing clients with their exclusive pre-approved offers. Such schemes make the process of taking loans easier and faster.
- Invoice financing
Invoice finance is another way of borrowing fund based on unpaid bills of customers. By selling its accounts receivables through invoice financing, an enterprise can enhance its working capital and receive instant fund to cover the expenses. It can also help speed up an organisation’s investment and expansion plans.
Apart from these, there are can also several other common options for financing your small business.
- Dividends and return of capital
The activity of corporate finance involves the allocation of a company’s excess earnings. Managers can either distribute the extra income as dividends among shareholders or retain for future investments.
While distributing to shareholders increases value, retained income proves useful in business expansion. If managers have confidence in earning a higher rate of return than their cost of capital, retaining would be ideal. They must distribute through dividends if expected otherwise.
The concept of corporate financing also broadly associates with financial risk management. Financial risks directly influence a business’ corporate value. So, managers can better understand the consequences of certain strategies and actions by tracking financial risk.
Additional points signifying the importance of corporate financing
- Encourage employees with financial and non-financial incentives.
- Funding research & development of product/services.
- Address diversification and expansion needs of a business.
- Pay the various taxes and duties from time to time.
- Meet the contingencies effortlessly.
- Asset replacement for modern machinery, the latest equipment, etc.
- Brings down manufacturing costs with innovative approaches.
- Raising finance to make new investments within the business.
- Grab the short-term and long-term targets
As corporate finance mostly involves various financial concepts and sectors, it is imperative for every manager to know its essentials. This plays an inevitable role in the survivability and growth of an enterprise, making a better choice and capitalising on opportunities.