Fundamentals of Corporate Finance

In the world of corporate finance, there are three primary principles to consider. First, the investment principle argues that businesses and corporations need to distribute their resources in the best way possible so as to efficiently meet their goals and objectives. Second, the financing principle contends that businesses and corporations need to have a suitable balance of equity, debt, and capital. Finally, the dividend principle says that when businesses and corporations reach a point where their revenue exceeds their costs, they need to find a way to reward those who have invested in the organization.

Digging a bit deeper into the field of corporate finance, other concepts emerge for consideration. Capital budgeting refers to the plan by which expenses will be used to acquire assets that will persist in the long term. The concept of the time value of money refers to the profit that can be made through the investment of funds over time. The concept of the cost of capital refers to the expenses associated with a given business venture; because lenders and investors will seek repayment of their investitures, it is imperative that the funds brought in exceed the overall costs so profits can be shared with all. The last important concept for consideration is the idea of measures of leverage; leverage refers to fixed costs, which contribute to greater stability in terms of earnings and income.