What is Corporate Finance?  

Your company is cash rich and you are in the fortunate position of being able to decide between a number of different options for future strategic growth.

Like all major companies, you will likely have a group of people working for you in the corporate finance team.

But what does this mean? And what work do these people do?

Corporate finance professionals work to decide what new projects a company should undertake to maximize corporate value to shareholders.

In the case of tech firms, for instance, they help management decide whether to invest in R&D on new technology by evaluating different options in terms of what they cost and how much return they might generate.

Corporate finance professionals also help management make decisions about how to grow the company’s revenue – should the company raise the price of its smartphones and other products, or cut them in order to sell more units?

Companies may also want to grow by acquiring other companies, maybe a competing smartphone manufacturer or perhaps a chain of retailers that can sell the phones.

The corporate finance team may even discover that the best option is not to acquire another company at all and that growth should occur organically instead – by selling smartphones in other countries, for example. 

Related article: 10 of the Most Popular Entry Level Finance Jobs

At a high level, this involves the establishing of the company’s future financial goals and objectives, in line with its strategic vision.

Once the strategic and financial objectives have been established, there are several key tasks that corporate finance managers must undertake to ensure that the company has effective financial management.

These tasks include:

• Creating detailed financial plans that outline the finance needed for the company’s future projects
• Determining whether capital is needed for new expansion projects and raising the capital if required
• Deciding how to return value to the company’s shareholders, such as making dividend distributions
• Analyzing possible expansion projects, with a view to ensuring that the company maintains its strategic competitive advantages
• Managing the company’s cash balances so that its cash is being used as productively as possible
• Communicating with the company’s current investors and potential future investors
• Analyzing possible mergers and acquisitions that may be used to grow the company and add more value to the shareholders, and
• Instituting an accounting and control function to ensure the company’s assets are safeguarded and the financial strategy is implemented successfully 
  
  Related article: Five Fundamental Jobs of the Finance Industry

A small start-up, for instance, is unlikely to have a dedicated finance team and the founders of the company often find themselves performing all of the corporate finance functions.

Meanwhile, a global blue-chip company will have dedicated roles for each of the different jobs that the corporate finance team has to do.

What’s more, there will probably be several people within the firm doing the same job in different locations and divisions.

Broadly speaking, there are three main groups of tasks that corporate finance teams perform. These are:

It needs to ensure that the company has enough cash to function and is also investing its excess cash well.

The accounting department puts together all the company’s financial statements and reports that information to business line managers.

It also monitors budgets and variances and has responsibility for establishing financial controls.

The financial planning and analysis team uses the company’s financial information to decide on investment projects, asset acquisitions and disposals, merger and acquisition activity, and so on.

It also deals with special projects, such as research and analysis on pricing policies.