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Corporate finance principles largely influence the decision-making process of an organisation. While the basic role of corporate finance is to optimise shareholders’ short-term and long-term value, there are more layers to it. Let’s dig in more, to get a clear idea. 

What is corporate finance?

Businesses need to raise capital for the organisation to function smoothly, and then utilise it efficiently for increased productivity. Corporate finance is used to manage financial activities that are critical to running a corporation.

In a deeper sense, corporate financing can be described as understanding the financial problems of an organisation before running a risk to prevent the risk. The financial calculations that go behind raising and deploying capital are known as corporate finance.

Types of Corporate Finance

Finance is an essential aspect of any business’ functioning. The different types of corporate finance available today are:

  • Short-term finance: short-term financing refers to financial assistance for a short period (usually less than a year). It is used to finance current assets of an organisation such as raw material inventory, bank balance, debtors, etc.
  • Lease finance: the dynamics of a lease finance involve a finance company buying an asset for the lessee. For the duration of the lease, the finance company owns the asset. On the other hand, the lessee has operating rights over the asset and also shares the risks and returns generated from the asset.
  • Long-term finance (borrowing): long-term financing typically refers to loans. Businesses borrow finances from a bank and are supposed to repay the amount over a period of more than one year. In simple terms, finances obtained for a time frame of more than a year is called long-term finance.

What is the importance of corporate finance?

If capital investment was non-existent for businesses, many famous companies would not have emerged; the same can be said for corporate finance. It is essential that organisations employ effective corporate financing techniques in order to boost productivity.

Let’s find out how corporate financial management contributes to an organisation’s productivity. Take a look:

  • Financial planning: in order to come up with effective strategies, organisations must have a well-drafted, concrete plan. While working on financial planning, business stakeholders need to employ financial planning strategies with a clear perspective of the outcomes. The financial decision-making process is finalised based on questions like – what the sources of finance are, how much would the company require, and would the finances help the business to produce a profitable outcome.
  • Capital: raising finances is an essential ingredient of corporate financing. More so, because it has significant business implications. The corporate financial management team needs to raise capital by resorting to the assistance of sources such as debentures, banks, shares, financial institutions, etc. Long-term funds are required for business expansion, which can be borrowed from banks or acquired by selling stocks to equity.
  • Investing: raising capital and investing are two sides of the same coin. Fixed capital is used to buy, as the name suggests, fixed assets such as land, property, building, etc. On the other hand, working capital is typically used to purchase raw materials and manage expenses like overheads, salaries, etc. It is imperative that sound investing decisions be taken in order for the organization to maintain a balanced financial quotient.

Risk management: financial management is employed by organisations to ensure that capital is invested appropriately and the risks that tag along with the investment are minimal. Corporate financing also involves ensuring that the RoI (Return on Investment) is optimal.

How to get into corporate finance?

The advantage of stepping into corporate financing is that this career branches out into various jobs and industries. In order to become a corporate finance professional, you can:

  • Take up a course to become an ACCA-qualified professional, which typically takes three years. This helps in building a strong foundation. Thereafter, aspirants can go ahead and pursue a financial analyst internship with an accountancy firm.
  • Join the corporate finance team of an accountancy firm as a trainee. This helps in getting hands-on experience in corporate financing.
  • Join the corporate finance advisory team of an organisation or investment bank, and later specialise in a particular qualification.

Corporate finance jobs and salary

If you are planning to follow a corporate finance career, you must have a clear idea of what your job options are. So, we are here to tell you all about it. Read on!

  • Financial Analyst: the job role of a financial analyst includes analysing financial data. This involves the collection, monitoring and creation of financial models that significantly contribute to the decision-making process for an organisation. According to payscale.com, the average salary of a financial analyst is between €48,091 per year.
  • Credit Manager: credit managers are responsible for the complete process of credit granting. This includes consistent implementation of credit policy, credit reviews of existing customers at regular intervals and assessing the worthiness of potential customers based on their credit history. According to Glassdoor, the average compensation offered to a credit manager is €55,000 per
  • Benefits Officer: A Benefits Officer’s role is to counsel and advise employees and retirees of an organisation about the retirement benefits. Retirement benefits include social security status, disability retirement benefits, retirement methods, taxes on retirement benefits, etc. They are also responsible for assisting employees in making informed decisions. As per glassdoor.com benefit officer’s average salary is between €31,000 and €35,000 per annum.
  • Investor Relations Manager: the job role of investor relations managers requires them to manage communication between an organisation’s corporate management and the investors. They help in assisting organisations’ functions such as releasing information, crisis management, and handling inquiries and meetings. On an average, an investor relations manager earns between €35,000 and €63,000 per year (source - glassdoor).
  • Strategic Planner: A strategic planner working in the finance department of an organisation is responsible for planning and directing strategies. They work to achieve the organisation’s finance-related strategic and long-term goals, in order to increase the company’s productivity. Financial strategic planners are also responsible for ensuring that financial goals are met, and approved budgets are adhered to. According to Glassdoor, the average salary of a financial strategic planner is about €52,000 per annum.
  • Chief Financial Officer: A Chief Financial Officer (CFO) reports directly to the Chief Executive Officer (CEO) of an organisation and assists the Chief Operating Officer (COO). Their job role includes building strategies concerning budget management, cost-benefit analysis, and securing new funding. This is a senior-level job and the average annual salary offered for this position is about €140,000 (Glassdoor).

Irrespective of whether a decision is high-level or simple, corporate finance principles apply to all decision-making processes. Since it is critical to the smooth functioning of an organisation, careers in finance have come to the fore recently. In the wake of this popularity and high demand, premium institutes are offering quality-driven courses in this field. One such university is the Berlin School of Business and Innovation (BSBI). They are offering a post-graduate course of MA in Finance and Investments to produce highly skilled corporate finance professionals, who can contribute to the financial growth of an organisation significantly.

So, if you want to pursue a corporate finance course, bring out your research glasses and start scouting for the course that suits you the best.

This text was written by Meghdeep Patnaik and edited by Anisa Choudhary