Unit 1: INTRODUCTION TO CORPORATE FINANCE

Concept
Corporate finance is related to the corporations and the financial decisions that are taken by the
corporations. There are several important concepts of corporate finance and several other
financial tools that are behind all these corporate decisions.
All these important concepts of corporate finance are used to minimize the financial risks to
which the corporate sector is exposed. At the same time, these concepts are used to increase the
profitability of the corporations. These important concepts of corporate finance can be used to
identify, analyze and solve the financial problems of almost every firm.

The important concepts of corporate finance are used to make investment decisions for both
long and short term. All the decisions that are related to the capital investment are long-term
decisions and working capital management is termed as short-term decision.

Another important concept that is related to the corporate finance sector is cost benefit analysis.
This concept is used to determine total input in a project and the results from that project.
Through this concept the corporations can identify the options where the investments can be
done.

Financial analysis is also among the important concepts of corporate finance. This analysis is
carried out by a group the experts. The concept of financial analysis is used in deciding the
stableness and profitability of a particular business venture.

Next comes, the concept of financial ratio that is also popular as accounting ratio. As a financial
concept, this ratio is used widely by the managers, shareholders, analysts of different fields and
many others in the field of finance. The financial ratio is used to confirm the financial condition
of a particular corporation. The financial ratio is also used for the purpose of making
comparisons between two or more companies regarding their merits and demerits and their
financial stability.