Corporate finance is essentially related to the financial decisions of the latter. However, it uses several elements to arrive at the value maximization of the company. Let’s discover these essential elements to manage for a good management of corporate finance.
The finance of a company: presentation
Since businesses are primarily for-profit, one of the main indicators of their success or health is indeed the level of their finance. The business Finance takes into account the organization’s investment and cash flow decisions. This part of the companies thus aims to maximize income while limiting the constraints of the risks incurred. The practice of corporate finance is strongly linked to the use of bank financing and market financing. Thus, the finance of a company takes both an internal and an external view. In general, the finance of a company aims to solve three major issues of the company.
First, corporate finance focuses on guide decisions for investments. Here, this capital side of a business assesses the relevance and profitability of forecasts relating to investment opportunities. In addition, corporate finance promotes funding decision which encompasses, on the one hand, the company’s own financial structure and, on the other hand, the means of improving the conditions for external financing. Ultimately, a company’s finance determines the investor compensation policy. This last solution concerns in particular the distribution of dividends.
Thus, the finance policies of specific companies evolve according to the stage of the company’s life, but above all according to the realities at hand. The finance of a company to make beneficial decisions and adapt its policy uses analysis tools details essential for decision-making. For more help with revealing your company, check out the business advice site. Thus, corporate finance uses other essential sister disciplines for analysis.
Keep accounts
General accounting is essential for any business. It is governed by accounting standards controlled by competent authorities within a determined scope. It is used to describe the situation and the results of the company through figures. The General Accounting for a company thus meets legal obligations. It therefore uses specific accounting documents. It necessarily involves the recording of various transactions involving goods, services or settlement instruments. Thanks to summary tables, general accounting provides essential information on the situation of the company.
General accounting, essential for companies of all sizes and in different sectors of activity, is thus a practical and effective tool for state structures. Among other things, it allows the latter to have information a priori faithful to collect the various taxes on the company’s activities. General accounting, although it is on the one hand a control tool, it represents a useful tool for the company itself. Accounting provides essential information to assess its condition and be able to make the right decisions.
The company’s cash
The company cash flow plays a significant role in the accounting results and, on a larger scale, for the analyzes of a company’s finances. A company’s cash corresponds to the cash available in cash and in the company’s bank accounts. Active cash in the balance sheet represents assets. For greater clarity, a company’s cash flow corresponds to all funds immediately available. It can be used for immediate expenses. It is used, for example, to pay bills related to daily activity.
Your company’s cash flow must be managed by a rational person to avoid running out of cash. Indeed, it is essential that in a company a certain liquidity rate be present at all times to be able to resolve urgent situations or to be able to seize unexpected opportunities. The cash flow also takes into account the lags between cash inflows and cash outflows. Cash management almost corresponds to managing the finances of your business on a reduced time scale. Cash management is thus guided by defined principles.
Financial analysis
In certain circumstances, financial analysis imposes itself as a control to be carried out for his company. It can be initiated by the very president of the company or by potential investors. As a business owner, you can ask a professional to carry out a financial diagnosis for you. Similarly, when an investor is about to take over a case or to invest in social capital, financial analysis is required to have precise and indicative data that allow good decisions to be made. Thus, with a financial analysis, it is the profitability and the solvency of the companies which are studied.
In addition, the financial analysis also provides information concerning the operation, the place in the sector of activity and the strategy followed. To establish a accurate diagnosis and fair, it is wise to resort to the services of a real professional to expect good results. Indeed, both to have an accountant or a treasurer it is essential that they have real knowledge and are professionals in the field. In addition, the financial analysis is based on three main steps. The first concerns the analysis of economic competitiveness, the second the analysis of financial sustainability and finally the last relates to the potential for development thanks to profitability.
The essential tools in finance
Corporate finance is a true indicator of its condition and prosperity. For effective financial management, professionals in the field use precise and useful technical tools. Indeed, although this management is not easy, the tools we are discussing allow for ease. The main tools used by the finance specialist are:
- the financial dashboard;
- the income statement ;
- the balance sheet;
- ratios;
- interim management balances.
The financial dashboard is a decision support tool in the sense that it makes it possible to react effectively in the event of considerable difference between forecasts and actuals. Also, the income statement takes inventory of income and expenses in a business. In addition, the balance sheet is an essential accounting document. Among other things, it makes it possible to identify financial needs and to determine the causes offinancial statement.
Ratios, on the other hand, use data collected by other tools to assess performance from various angles. Similarly, it is possible to have the results of the company according to precise operating levels thanks to the intermediate management balances. For in-depth financial analysis, other equally accurate and effective tools are used.
Analytical accounting
In a company, several types of accounting are kept to have a permanent view and to facilitate decision-making. The cost accounting is thus clearly distinct from general accounting. Still called management accounting, cost accounting is concerned with economic activity. It represents the main element allowing short-term and medium-term decision-making in order to improve performance. A main function of this accounting is to accurately determine the production costs bids and set a margin to achieve specific operating results.
If general accounting has a legal character, management accounting is a essential element for companies. On the one hand, it allows the control of factors and costs entering the production and distribution process. Then, it sets the cost of the final products or services so that it can make a profit with a certain margin. Cost accounting also establishes the relationship between pre-established costs and actual costs. This key sector of a company must therefore be the responsibility of a professional with the qualification and the experience required.
A measure of performance
In order to optimize the financial management of your company, it is essential to measure its performance and carry out diagnostics. The performance of a company is measured against various indicators. Performance measurement can be oriented towards company capacity to achieve its goals. In this case, thebusiness efficiency is tested. For performance measurement, efficiency can also be considered. This indicator corresponds to a company’s ability to rationally use the resources at its disposal to produce optimal results. Finally, the performance of a company is gauged from the point of view of relevance. It relates to the objectives that a company has set itself in a specific environment and economic context.