Category: Business

Guiding Principles of Corporate Finance

 

Corporate Finance pic

Corporate Finance
Image: investopedia.com

Edesiri Onatejiroghene Ibru is an oil and gas analyst with 15 years of experience in the field. Edesiri Onatejiroghene Ibru currently serves as a corporate finance analyst with Midwestern Oil and Gas Company Ltd. in Lagos, Nigeria.

Defined broadly as all financial activity undertaken by a business, corporate finance adheres to a number of guiding principles regardless of industry. Here is a quick look at three core principles of corporate finance.

Financing Principle: Corporate finance professionals must select the combination of debt and equity that optimizes the value of their company’s investments. The financing principle also requires businesses to select their financing based on the specific assets being financed.

Investment Principle: Successful businesses choose investments whose yields exceed a set minimum hurdle. Return on investment is often measured in terms of cash flows generated, but corporate finance professionals must also consider other benefits and drawbacks of each investment.

Dividend Principle: In the event that investments do not exceed the baseline hurdle, businesses must return money to their owners. Depending on the preference of the shareholders, these returns can take the form of true dividends or stock buybacks.

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