Financial Mgt

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Date Submitted: 09/01/2011 11:02 PM

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Corporate finance is the area of finance dealing with monetary decisions that corporate executives make and the tools and analysis used to make these decisions. Corporate finance assumes that shareholders are the residual claimants. Therefore, the primary goal of executives should be to maximize shareholder value[1]. Recently, legal scholars (e.g., Stout 2002) have rebuked the assumption that shareholders are the residual claimants, implying that the assumed goal of maximizing shareholder value is inappropriate for a public corporation. This criticism in turn brings into question the advice of corporate finance, particularly related to stock buybacks made purportedly to "return value to shareholders."

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 (such as the terms on credit extended to customers).[citation needed]

The terms corporate finance and corporate financier are also associated with investment banking. The typical role of an investment bank is to evaluate the company's financial needs and raise the appropriate type of capital that best fits those needs. Thus, the terms “corporate finance” and “corporate financier” may be associated with transactions in which capital is raised in order to create, develop, grow or acquire businesses.