Characteristics or Features of Corporate Finance
The points below discuss the characteristics or features of corporate finance.
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- Financial Activity : Corporate finance is a financial activity. It includes planning, raising, investing and monitoring the finance of the company. In short, it includes all the financial aspects of the company. This work is done by the financial department headed by the finance manager.
- Raising the finance : Corporate finance includes raising (collecting) finance for the company. Finance can be collected through shares, debentures, bank loans, etc. It is very difficult for new companies to collect finance because the investors do not have confidence in new companies. However, it is very easy for reputed companies to collect finance due to their well-established goodwill in the market.
- Investing the finance : Corporate finance also includes investing (using) the finance. The finance is used to achieve the objectives of the company. It is used to purchase fixed assets. It is also used for running the company. The finance must be used profitably.
- Objective oriented : Corporate finance is objective oriented. That is, it is used to achieve the objectives of the company. The main objectives are, viz., (i) To earn maximum profits, (ii) To give a proper dividend to the shareholders, and (iii) To create a proper reserve for future growth and expansion, etc.
- Types of finance : There are two types of corporate Finance, viz., fixed capital and working capital. Fixed capital is also called long-term finance. It is used to meet the long-term needs of the company. It is used to purchase fixed assets. Working capital is also called short-term finance. It is used to meet the short-term needs of the company. It is used to pay the day-to-day expenses of the company. Medium term finance is also used to meet the medium term needs of the company.
- Relationship with other departments : Corporate finance has a close relationship with all other departments in the company, i.e. Production Department, Marketing Department, etc. This is because all departments need finance continuously.
- Dynamic in nature : Corporate finance is dynamic in nature. It goes on changing according to the changes in environment, circumstances, times, etc. So, the finance manager must use new and innovative ideas for collecting and investing money. He must use creativity while doing his job.
- Requires proper planning and control : Corporate finance requires proper planning and control. Planning is required to collect finance from the investors. It is also required for investing the finance. Control is required to find out whether the finance is invested properly or not. If the finance is not invested properly, then corrective measures must be taken.
- Managing finance is an art and science : Managing finance is an Art because it requires human skills and judgement. It is a Science because it follows a systematic approach.
- Legal requirements : There are many legal requirements for corporate finance. The company has to take permission, from the Controller of Capital Issues, for collecting finance from the public. The company also has to follow all the rules of SEBI. A Sole Trader and Partnership Firm need not follow these rules.
- Important part of business management : Corporate finance is an important part of business finance. "Finance is the life blood of business." Finance is required for all business activities. It is required for promoting business. It is required for conducting the business smoothly. It is required for expansion, diversification, modernization, replacement of assets, etc. Finance is also required for paying taxes, dividend, interest and for meeting contingencies.