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Finance has three broad areas, namely, personal finance, corporate finance and public finance. Corporate finance deals with the management of funds of a corporation (company or organization). The primary objective of corporate finance is to maximize shareholder value. It is the management science of handling the funds of a corporation. Every function or the decision or the process in a company which involves money, in a direct or indirect way, comes under the broader banner of corporate finance. There are three important decision areas of corporate finance i.e. investment decisions, financing decisions and dividend decisions. Some of the main topics that fall under the domain of corporate management are investment analysis and capital budgeting, investment policy, maximizing shareholder value, investment and project valuation, return on investment, leveraged buyout etc. The subject has toes to other domains of finance by virtue of its large scope of operation. Investment banking and financial risk management are some such areas.
Corporate finance, as a process, is the utilization of scientific tools for taking the above mentioned decisions. Investment decisions refers to the utilization of funds at the highest possible returns and are one of the major activities of a finance manager. These decisions include investment in fixed assets, management of current assets and management of ideal cash on hand. Financing decisions refers to the sourcing of the funds at the cheapest possible cost. These decisions include how to finance the required funds, how to repay the borrowed funds and management of current liabilities. Dividend decisions refers to the reward mechanism for the providers of the funds. These decisions include how much dividend to pay, at what time to pay and in what form to pay.
The primary goal of corporate finance is to maximize the shareholders' wealth. This is achieved through the effective decision making in all the three areas mentioned above. The financial health of a company depends on the efficiency of its corporate finance department.
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