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Corporate Finance Theory

The theory of corporate finance deals with the separation of control and ownership. Those individuals who have ownership of the corporation might not be the same as those who control it. Much of corporate finance theory is normally based on the problems that come up due to the separation stated above such as problems relating to transparency accountability, failure of governance but as well as many more benefits such as corporate ownership as well as restructuring which normally take place efficiently and quickly.

Corporations normally have ownership of real assets that do generative a cash flow that is productive. They also finance the operations of theirs by issuing any financial claim, which also has claims on productive cash flow of any corporations. There have been two claims that dominate this role known as equity and debt claim.

A debt claim refers to a fixed claim, which is on the firm’s flow of cash. If the firms happen to fail to meet with the service of the debt then the firm will have to restructure the debt liability or might have to choose in order to default the liability.

Corporate finance is the finance dealing area with decisions of the business enterprise, as well as the analysis and is involved in making such decisions. The main goal of corporate finance is to be able to maximize the corporate value while also managing the financial risks of the firm. Although it could be a little, different from that of managerial finance which studies the finance decisions of all the firms instead of learning only about the corporate. The important and main concept while studying about corporate finance is applicable to all kinds of financial problems in firms.

This discipline could be as well divided into short term as well as long-term techniques and decisions. Any decisions regarding capital investment fall under the long-term category, about which are the projects that receive investments, if that investment required finance with debt or even equity or to pay any dividends to shareholders for the same. While short-term decision regards that which concern current assets and liabilities, the focus here is about inventories, lending, borrowing and managing cash.

This term called corporate finance or corporate financier is associated mainly with investment banking. The main role of the investment bank is to analyze the financial need of the company and even raise the required capital that could fit the needs.

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