A Comprehensive Guide to Corporate Finance & Concepts of Corporate Finance
                     A Comprehensive Guide to Corporate Finance & 
 Concepts of Corporate Finance
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First of all let’s discuss the meaning of the topic that you’re diving into. So let’s start with  
understanding the basics. My first question will be like, what are and why the  
fundamentals/basics of corporate finance matter to me and you? Yes you are absolutely  
right; No one can, run a business without corporate finance. Each and every business  
and corporation out there will get involved with corporate finance because it’s all about  
the diverse financial actions a company needs to take for working. Firms need corporate  
finance to function and more specifically to create value.
Whether your business is small or large, you most likely have a dedicated person or  
even a team to manage the financial activities, to look after the corporate finance of the  
organization and make sure the company is not falling apart due to its financial  
management. What kind of issues or questions does a corporate finance deal with?
Some of the issues and questions are:
 A firm should or should not invest in the projected venture?
 Should the dividends be given to shareholders for their investment in the  
company or not?
 How should the company make payments with debt or equity, or a little from  
both?
For example let’s take the dividend part as it is very crucial part of corporate finance,  
which deals with shareholders and the value to be given. The proceedings and actions  
of corporate finance are without a doubt focused on maximizing shareholder value,  
either through a short term or a long term financial activities.
The main concepts of corporate finance can be divided into 2 main categories:
1)Capital budgeting or Investment analysis: Investment analysis is solely dedicated  
in adding value to the long term corporate finance ventures. These ventures are related  
to the investments that are funded through capital structure.
2)Working capital management: Is about the day to day methods of running the  
business and hence is more focused on the short term growth of the business. Basically  
the capital budgeting is dedicated to the long term investment and growth whereas  
capital management manages the relationship of short term liabilities and assets.
What is Financial Modeling?
Let’s start the topic by introduction of “Financial Modeling” and rest will be easy to follow.  
A well laid financial model is the most important element of the strategic plan for a  
corporate business, whether it plans to expand physically, by means of acquirements,  
or/by looking for external funding’. A good financial model forms a path for the future, in  
a transparent and credible way, with bendable actions that can be worked on and easily  
be altered for approaching risks facing your business and by working on opportunities.
Financial modeling is the process, a way to put together a financial representation of a  
business or we can say that it’s creating a summary of business operations. This task of  
building a mathematical model helps financial analysts to foretell likely performance and  
earnings of the company in future. Studying these financial models/representations the  
analysts use numerous projection formulas, valuations and theories to recreate business  
operations, once these financial models are completed it demonstrates a numerical  
description of the business procedures which then is used for future business  
predictions.
Some of the important objectives of creating financial models are:
 Raising capital
 Valuing a business
 Making acquisitions
 Growing the business
 Capital allocation
 Selling or divesting assets and business units
 Budgeting and forecasting
How is Corporate Finance Related to Financial Modeling?
A finance team might build models as they generate or modify their financial forecasts,  
which explains the frequent confusion between the two functions. But Financial models  
serve other principles, as well, to analyze both current operations and for long-term  
forecasting. Models can also help find out the impact of decreasing or increasing prices  
for various services or products.
The financial models are also integrated by organizations to assess their finances and  
undertakings. It is henceforth a contribution to making subsidizing plans for corporate  
undertakings hence, Corporate finance tend to be related with transactions in which  
existing capital is utilized and new capital is raised in order to create, develop and grow  
new ventures and projects, and to acquire other businesses. Corporate finance is often  
connected with corporate dealings that lead to the formation of new capital structures or  
change of ownerships. Corporate finance provides support for:
 Target research, approach and selection
 Feasibility analysis
 Preparation of business plans
 Valuation
 Sourcing support and funding advice
 Tax structuring, funding and deals
 Project management
 Terms of negotiation
Corporate Valuation Methods in Financial Models:
When valuing a company there are three main valuation methods used by corporate  
valuation practitioners:
 DCF analysis (Discounted Cash Flow)
 Comparable company analysis (“Comps”)
 Precedent transactions
These are the most common methods of valuation used by/in corporate finance  
professionals, investment banking, private equity, equity research, mergers &  
acquisitions and most areas of finance. Let’s take a look in them:
DCF analysis: Discounted Cash Flow (DCF) these types of financial models falls under  
the class of Valuation models and are typically, though not exclusively, used in equity  
research and other areas of the capital markets. A DCF model is a detailed type of  
financial model used to value a business. DCF model is a projection of a company’s  
unlevered free cash flow discounted back to today’s value, which is called the Net  
Present Value.
Precedent transactions: is another form of relative valuation where you compare the  
company in question to other businesses that have been sold recently or acquired in the
same industry. These transaction values comprise of the takeover premium included in  
the price for which they were acquired.
Comparable company analysis (“Comps”): Comparable company analysis (also  
called “peer group analysis” or “trading multiples”) is yet another relative valuation  
method in which you compare the current value of a business to other similar  
businesses by studying the trading multiples like EV/EBITDA, P/E, or other ratios.  
Multiples of EBITDA are the most used valuation method.
Conclusion:
“Although financial modelling is a collective word that means different stuff to different  
users, the orientation typically recounts either to quantitative finance applications or to  
accounting and corporate finance applications”.
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 Building Growth Drivers for Revenue
 Building Growth Drivers for Cost
 Building Asset and Debt Schedule
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 Circular References in Cash and Interest
 Analyzing Financial Statements with Ratios etc.
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Resource: https://blog.mindcypress.com/p/a-comprehensive-guide-to-corporate-  
finance-amp-concepts-of-corporate-finance
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