What is corporate finance?

Here you will learn everything you need to know about corporate finance, or the financing of companies, such as what it is and how it works.

Corporate finance is about the ways companies use to maximise the return for their shareholders. Examples of components of corporate finance are financing, acquisitions, capital structure and balancing risk against potential return.

What is a corporate finance strategy?

A corporate finance strategy is a way of working whose aim is to maximise the return for investors. There are many different corporate finance strategies, which we clarify below.

The 8 most common corporate finance strategies

Below we give you examples of eight common corporate finance strategies.

1. Investments, that is, where the company chooses to invest its money, for example in research, development, the purchase of machinery or new hires.
2. Financing, that is, how the company obtains capital to finance its investments. Two common types of financing are loans and new share issues.
3. The capital structure, which is the balance between the company's debt and equity.
4. Cash flow management, which is the company making sure it has enough capital to run its business.
5. The dividend policy, which is the company deciding how much of its profit is to be paid out to shareholders. Sometimes companies may choose not to pay any dividend at all.
6. Mergers and acquisitions, which is the company deciding either to merge with other companies or to buy up other companies.
7. Financial planning, which is about forecasting and budgeting for future financial goals.
8. Share buybacks, which is the company buying back its own shares from the market to increase both the value and the return per share.

Real examples of corporate finance strategies

• Doing as Tesla does, which is to finance its expansions with a mix of equity and bonds.
• Doing as Apple does, which is to regularly buy back shares to increase the value per share and the return per share.
• Doing as Amazon does, which is to reinvest large parts of its profit to enter new markets, instead of paying large dividends to shareholders.

Below we answer frequently asked questions on the subject of corporate finance.

Are company financing and corporate finance the same thing?

The concepts overlap, but they are not the same thing. Company financing is a narrower concept that is mainly about the company's capital structure, that is, loans and equity, while corporate finance is also about the allocation of the company's resources.

Why is corporate finance important?

Corporate finance is important for companies to be able to grow and generate a return for their shareholders. Without effective corporate finance strategies it is difficult for companies even to survive, which ultimately hurts both employees and investors.