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What is Corporate
Pertaining to corporations. Corporations are the most common form of business organization, and one which is chartered by a state and given many legal rights as an entity separate from its owners. This form of business is characterized by the limited liability of its owners, the issuance of shares of easily transferable stock, and existence as a going concern. The process of becoming a corporation, called incorporation, gives the company separate legal standing from its owners and protects those owners from being personally liable in the event that the company is sued (a condition known as limited liability). Incorporation also provides companies with a more flexible way to manage their ownership structure. In addition, there are different tax implications for corporations, although these can be both advantageous and disadvantageous. In these respects, corporations differ from sole proprietorships and limited partnership.
CORPORATE FINANCE
Corporate finance is the area of finance dealing with monetary decisions that business enterprises make and the tools and analysis used to make these decisions. The primary goal of corporate finance is to maximize shareholder value. Although it is in principle different from managerial finance which studies the financial decisions of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms. The discipline can be divided into long-term and short-term decisions and techniques. Capital investment decisions are long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. On the other hand, short term decisions deal with the short-term balance of current assets and current liabilities; the focus here is on managing cash, inventories, and short-term borrowing and lending.
Introduction
Fixed Capital Required for procurement of fixed assets viz land, machinery, building, plant etc. Working Capital Required for financing day to day activities Working capital is warm blood passing through the arteries and veins of the business and sets it ticking. Liquidity & profitability are important in business. Liquidity depends on the profitability of the business activities and profitability is hard to achieve without sufficient liquid resources.
Definitions
Excess of Current Assets over Current Liabilities It is that capital which is not fixed Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another. E.g. from cash to inventories, inventories to receivables & from receivables to cash Amount of funds necessary to cover the cost of operating the enterprise
CA & CL are assets & liabilities which arise in the course of normal operations of an enterprise. These assets change form and are used to pay off current liabilities. This changing of assets due to and in course of operations is known as Working Cycle or Operating Cycle. The assets & liabilities thus, arising can be said to be CA & CL and the difference between the two as Working Capital
Purchase & Sales Terms Credit purchase & Cash sales would require less capital & Cash purchase & Credit sales would require more WC Inventory Turnover Low inventory turnover more WC & vice versa Seasonal variations sugar industry, Oil industry etc Dividend Policy if dividend is paid more WC & vice versa Business Cycle More WC during prosperity & less during depression Change in Technology