Corporate finance is an important part of any business. Thanks to proper financial management, a company can not only survive, but also develop, increase its revenues and expand sales markets.

In this article, we will consider the history of corporate finance, its main goals and objectives, and also talk about the people who are responsible for finances in the company.

History of Corporate Finance
It goes back to ancient times, when people began to trade and exchange goods.

Corporate finance as an independent discipline has been formed only in the last few centuries. This happened with the development of large companies that needed to manage their cash flows and investments.

The history of corporate finance dates back to:

The first joint-stock companies.
One prominent example of early corporate finance was the East India Company in the 1600s. This enterprise needed large capital to conduct trade operations in India.

To raise funds, the company began issuing shares, and anyone could invest the money. This was one of the first uses of equity capital that became the basis for modern financial systems.

Industrial Revolution.
In the XVIII-XIX centuries, with the development of industry and the construction of railways, there was a need for huge investments. Companies raised capital to build factories, create new technologies, and expand their own capabilities.

During this period, banks and investment companies appeared that organized and managed these finances.

XX century and new theories.
In the middle of the 20th century, there were significant changes in corporate finance. During this period, new theories of capital management were developed.

For example, Harry Markowitz's portfolio theory, which explains how to allocate capital between different assets in order to reduce risks and increase returns. And William Sharp's Capital Asset Valuation Model (CAPM) has helped companies understand how to value their assets and risks.

Banks appeared to help companies raise capital, and risk and profit analysis models began to develop.

Current trends.
Today, corporate finance management includes not only working with capital and investments, but also such aspects as risk management and financial planning.

Technology allows the use of sophisticated analytical tools to predict various financial scenarios.

 
Thus, the history of corporate finance shows how approaches to capital management have changed with the development of the economy, which allowed companies to grow and develop.

What is corporate finance?
This is the company's cash and asset management system. Their main task is to rationally distribute financial and credit resources so that the company can develop, make a profit and reduce risks.

Corporate finance covers a wide range of issues, such as:

Raise capital. Companies always need money for their growth. They can raise funds through the issuance of shares, bonds or loans.
Invest. This is the process when a company directs its financial resources to various projects that can generate income in the future. For example, the construction of a new factory or the development of new products.
Manage cash flows. It is important that the company always has enough funds to pay bills and investments.
Manage risk. Any financial decision of a company is associated with risks. The task of financial management is to reduce these risks and anticipate possible problems.
Regulate financial planning. This is a long-term forecasting of the company's financial flows and costs, which helps to make the right decisions to achieve goals.
 

Why do you need corporate finance management: goals and objectives
Without competent control over financial flows, a business may face a shortage of money, inefficient use of resources and even bankruptcy.

Financial management helps not only to avoid such problems, but also to achieve sustainable growth and increased profits.

The goals of corporate finance management can be divided into several key areas:

Increase the company's profits.
The main task of any business is to make money. To do this, you need not only to increase sales, but also to competently manage costs, optimize production processes and reduce costs.

It is important for the company to automate processes, so you can reduce labor costs and increase net profit.

Provide liquidity.
It is a company's ability to quickly turn assets into money. Financial management is aimed at ensuring that the company always has the means to fulfill obligations - payment of salaries, purchase of materials, payment of taxes and other expenses.

For example, a business that plans its financial flows often avoids situations where there is not enough money for urgent payments.

Control risks.
Any financial decision is associated with risks. A company may invest in a new project, but it may not bring the expected profit. Corporate finance management allows you to assess possible risks in advance and minimize them.

For example, a company that wants to launch a new product can research the market in advance to reduce the risk of error.

Reduce tax deductions.
The company can resort to tax benefits or create holding structures, this will significantly reduce the tax burden in the future. Special schemes are being developed that reduce tax costs and thereby increase net profit.

Increase the value of the company.
The higher the value of assets and the profitability of the business, the more attractive the company is to investors. This can be expressed in an increase in the price of shares or the possibility of attracting additional capital on favorable terms.

For example, if a company invests wisely in expansion and modernization, it can attract shareholders and increase the market value of the company.

Plan for the long term.
This helps to avoid crises associated with lack of funds and to prepare for possible economic changes.

Now let's see what tasks corporate finance management solves:

A company requires money to grow, and the task of financial management is to find sources of capital. This can be both raising funds from investors through the issue of shares, and loans from banks or issuing bonds. Example: a startup attracts investments through the sale of a stake in the company to finance the development of a new product.
Companies are constantly in need of updating equipment, developing new products, and entering new markets. Financial management helps you assess which projects will bring the most profit and where to invest. For example, if a manufacturing company invests in equipment upgrades, this will increase production volumes and reduce production costs.
You need to make sure that money is not wasted and look for ways to reduce costs. If a retail chain implements a system for automating the accounting of goods, it will be able to reduce the cost of storing and transporting products.
The company's financial flows must be balanced so that the money arrives on time and in the right amounts. This is necessary for the smooth operation of the business.
Any business faces unexpected costs, crises or a decline in demand. Corporate finance management includes the creation of reserve funds that will help you survive difficult times. For example, if a company sets aside part of its profits in a reserve fund, then in the event of a crisis, it will have funds that will cover urgent expenses.
 

Features of corporate finance management
Corporate finance management has its own features that distinguish it from personal or public finance management. Here are a few key features:

Scale of operations.
In large corporations, the volume of financial transactions can reach billions of rubles. Managing such large amounts requires a special approach and the use of sophisticated analytical tools.

For example, companies can use software to predict financial flows and analyze possible risks.

Diversity of sources of capital.
Companies can raise funds from a variety of sources – shareholders, banks, investors, government subsidies, and grants. This requires a flexible approach to capital management in order to effectively use each of these sources.

Risk management.
Companies are constantly faced with various risks, such as currency fluctuations, market changes, economic crises, and others.

Long-term investments.
Corporations often invest in projects that can generate income in a few years.

For example, building a new factory or developing a new product can take several years before a company starts making a profit from them. Before that, each company must develop strategies to go from creating a new product to introducing it to the market with minimal risks.

Human resources.
For effective corporate finance management, companies need qualified specialists - financiers, accountants, economists. They are the ones who develop strategies, keep records and control financial flows.

Corporate finance management features include a few more aspects that may seem less obvious at first glance, but play a major role in business success.

Let's consider some of them:

Financial flexibility.
Many companies focus on optimizing their operating costs and revenues, but overlook the importance of corporate finance principles. It is a company's ability to respond quickly to changes in market conditions, sudden opportunities, or threats.

The impact of corporate culture on finance.
Corporate culture and financial management are much more connected than it may seem. Companies with a transparent, trusting culture, where employees understand the importance of conserving resources, often manage their finances better.

If employees realize that saving on everyday expenses (e.g., electricity, office materials) affects overall financial performance, it helps to reduce unnecessary spending.

Financial management in the face of uncertainty.
Financial management requires taking into account not only current indicators, but also forecasting in conditions of uncertainty. Market instability, changes in legislation, crises – all this can suddenly affect the financial condition of the company.

For example, if a company creates agile strategies with a "plan B", this allows you to prepare for possible scenarios and reduce losses.

Psychological factor.
The emotions and perceptions of employees and managers can have a strong impact on financial decisions.

For example, excessive caution can lead to the loss of profitable opportunities, and excessive confidence can lead to risky investments.

Managing cash flows by segment.
Most companies look at their cash flows as a single entity. However, successful companies often manage their finances by segments: they break down the business into parts (by product, region, or customer) and analyze the financial flows for each of them.

Analysis by segments allows you to understand which products bring more profit, and which require improvement.

Seasonality.
Not all companies operate the same way throughout the year, and this needs to be taken into account when managing finances. For example, many retail companies are experiencing a decline at the beginning of the year and a sharp increase in the run-up to the holidays.

Competent cash flow management during seasonal peaks and troughs helps the company to ensure stability, avoiding cash gaps.

The impact of technology.
An important aspect is to use technology to manage finances. This will not only allow you to automate accounting, but will also help you assess financial efficiency, predict results, and find hidden reserves.

Financial intuition of managers.
It's more than just experience and knowledge. Sometimes decisions are made based on a "feeling" of the situation, especially in conditions of uncertainty or lack of complete information.

For example, some executives often make decisions based not only on numbers, but also on a deep understanding of the market and the specifics of the business. This requires observation and qualification in a certain field.

Focus on corporate social responsibility (CSR).
Not everyone understands that CSR can affect a company's financial results. Investing in social and environmental projects can improve a company's reputation and attract customers, which is sure to bring financial benefits in the long run.

Companies that adopt green technologies often receive tax breaks and attract the attention of a wider audience of consumers.
Invisible costs.
Some of the company's expenses may not be obvious at first glance, but they play a significant role in the financial health of the company.

For example, the cost of training staff or maintaining company culture may be perceived as secondary, but they affect productivity and retention, which ultimately reduces the cost of finding new employees.

Financial management requires attention to detail, flexibility, as well as consideration of the principles of corporate finance, internal and external factors that can affect the financial stability of the company.

Who manages corporate finance in companies
Corporate finance management in a company is not the task of one person, but of an entire department. Depending on the size of the company, the following specialists may be involved in this process:

Chief Financial Officer (CFO). This is the main person responsible for finances in the company. He develops financial strategies, oversees budgets and financial reporting. In large companies, it is the CFO who makes key decisions about investments, loans, and resource allocation.
Financial Dimensions. These professionals analyze financial information, forecast income and expenses, and assess risks.
Accountants. Their task is to keep records of all financial transactions of the company, monitor the correctness of tax calculations, and draw up financial reports. Accountants are also responsible for ensuring that the company complies with legislation that is related to financial activities.
Treasurer. This specialist controls the company's cash flows, monitors liquidity, and manages short-term financial transactions. He is responsible for ensuring that the company always has money to fulfill its obligations.
Investment managers. They manage the company's investment portfolios, choosing the projects in which it is worth investing. Their task is to increase profitability with minimal risks.
Corporate finance management is a complex and multifaceted process involving a whole team of specialists. Their work is aimed at ensuring that the company uses its resources efficiently and grows steadily.