Financial Planning
Financial planning refers to activities that relate to the procurement and investing of funds and managing the returns on such investments. The process involves corporate managers considering their financial situations to build specific financial plans for reaching their goals. It is critical to the functioning and growth of a business and digs into multiple fields, including taxes, investing, insurance, savings, and other areas of corporate finance. Organizations must put together their plans for the future, defining how to manage their finances and prepare for potential costs and risks. This practice involves evaluating financial situations and identifying organizational financial goals to develop and implement necessary recommendations.
There are a number of financial planning objectives, including ensuring funds availability as and when required and checking unnecessary raising of funds by the organization. Fund availability is essential to ensure liquidity or adequate financial resources for the organization’s daily operations. Liquidity is also critical for organizations to settle their obligations as they fall due (Štangová, & Víghová, 2021). Notably, firms need sufficient funds for different purposes, including emergencies. On the other hand, organizations must not hold idle funds arising from surpluses, meaning they do not need to raise unnecessary funds as this might result in a loss against investment. To avoid keeping idle funds, all financial resources must be allocated appropriately and invested as a critical part of the financial planning process.
Corporate Finance
Companies require financial resources to invest and grow. To make critical financing and investment decisions, managers must understand the branch of finance dealing with the two areas. Financing decisions are concerned with the sources of funds, while the use of such funds is a concern of the investment decisions (Heizer & Rettig, 2020). Once an organization decides to pursue a given project, it determines its cost and considers other financial commitments or requirements to drive the project. The management must decide the source of funding according to the required resources. Hence, when the company’s own funding may not be adequate, the management might resort to debt financing involving borrowed funds. As managers pursue financing decisions, they must consider the cost of financing and its availability.
Investment decisions are also critical in corporate finance because every firm keen on investment must decide to invest wisely by selecting the most viable projects. Multiple projects could be available for the company, but one of these must be the most viable to give the highest returns. Therefore, selecting the best project will depend on the available financial resources to the organization and the potential returns the organization would reap.
Conclusion
Corporate finance represents a broad field that enables managers to make critical decisions, especially concerning funding and investment. These two factors are essential to organizational growth and ensure that investors are guaranteed of their returns and enhance corporate performance.
References
Heizer, T., & Rettig, L. R. (2020). Top management team optimism and its influence on firms’ financing and investment decisions. Review of Financial Economics, 38(4), 601-622.
Štangová, N., & Víghová, A. (2021). Company liquidity as a reflection of receivables and payables management. Entrepreneurship and sustainability issues, 9(2), 238.
