Corporate Finance

Every company faces three big financial questions. Which projects and assets should it invest in? How should it pay for them, with its own profits, by borrowing or by selling shares? And how much cash should it return to owners or keep for the future? Corporate finance provides the tools to answer these questions.

Investment decisions, often called capital budgeting, involve judging whether a project, such as a new factory or product, will earn more than it costs, using methods like net present value. Financing decisions involve choosing the right mix of debt and equity, known as capital structure. Payout decisions involve setting dividends and share buybacks.

Corporate finance also covers day-to-day management of cash and working capital, as well as major events such as mergers, acquisitions and raising money on stock markets.

The underlying aim is to make choices that create long-term value. A project that earns 12% when investors require 9% adds value; one that earns 7% destroys it, even if it is profitable on paper.