Corporate Finance is the process of matching capital needs to the operations of a business.
It differs from accounting, which is the process of the historical recording of the activities of a business from a monetized point of view.
Captial is money invested in a company to bring it into existence and to grow and sustain it. This differs from working capital which is money to underpin and sustain trade – the purchase of raw materials; the funding of stock; the funding of the credit required between production and the realization of profits from sales.
Corporate Finance can begin with the tiniest round of Family and Friends money put into a nascent company to fund its very first steps into the commercial world. At the other end of the spectrum it is multi-layers of corporate debt within vast international corporations.
Corporate Finance essentially revolves around two types of capital: equity and debt. Equity is shareholders’ investment in a business which carries rights of ownership. Equity tends to sit within a company long-term, in the hope of creating a return on investment. This can come either through dividends, which are payments, usually on an annual basis, related to one’s percentage of share ownership.
Dividends only tend to accrue within very large, long-established corporations which are already carrying sufficient capital to more than adequately fund their plans.
Younger, growing and less-profitable operations tend to be voracious consumers of all the capital they can access and thus do not tend to create surpluses from which dividends may be paid.
In the case of younger and growing businesses, equity is often continually sought.
In very young companies, the main sources of investment are often private individuals. After the already mentioned family and friends, high net worth individuals and experienced sector figures often invest in promising younger companies. These are the pre-start up and seed phases.
At the next stage, when there is at least some sense of a cohesive business, the main investors tend to be venture capital funds, which specialize in taking promising earlier stage companies through quick growth to a hopefully highly profitable sale, or a public offering of shares.
The other main category of corporate finance related investment comes via debt. Many companies seek to avoid diluting their ownership through ongoing equity offerings and decide that they can create a higher rate of return from loans to their companies than these loans cost to service by way of interest payments. This process of gearing-up the equity and trade aspects of a business via debt is generally referred to as leverage.
Whilst the risk of raising equity is that the original creators may become so diluted that they ultimately obtain precious little return for their efforts and success, the main risk of debt is a corporate one – the company must be careful that it does not become swamped and thus incapable of making its debt repayments.
Corporate Finance is ultimately a juggling act. It must successfully balance ownership aspirations, potential, risk and returns, optimally considering an accommodation of the interests of both internal and external shareholders.
Many personal finance articles have been written on the issue of money. Can’t say I have been moved to action by many. First I’d like to say it is OK that you feel down about the current situation about your personal finances. I give you permission to feel your feeling for the next 24 hours and then pull yourself by your boot straps and let’s what we can do.
There exist many a definition, I want to share with you my personal finance definition:
Financial freedom is not an event, it is a skill.
I bet right now with the current economic situation you are saying to yourself, “I just wish I could the lotto!” Boy don’t we all and yet statistics and personal finance facts show that the majority of people who win the lottery, end up broke and worse off before their winnings! Imagine that. You among the many seeking wealth, riches, fame few people realize that money isn’t the solution to their problems; the way you think about money is the problem and the solution.
I can almost see you going oh yeah, give me the money and I’ll show you change in mindset! My favorite entrepreneur of all times, Henry Ford was once asked, “What if you lost everything you own?” He responded without missing a beat: “I’d have it all back and more within 5 years.”
Being a master of your own personal finance is not about what is in the bank; it’s about the ability to acquire the skill that will show you how to produce new streams of income and wealth based on your knowledge and experience.
So before we go any further on this issue let us tackle the real problem here that is impeding your personal finance for good! Why you might ask? Well without the mastery of these 5 steps, your desire for your goal for financial success and financial freedom is highly unlikely! This is why big players in any industry have coaches, Oprah has a life coach, football players and basketball players have coaches and mentors. Tiger woods after every bad game will go in for coaching and training. Why? Those who achieve great financial success do not go it alone. They always have a team. Those who achieve great poverty have the do it yourself mentality!
Why is it important to plan personal finances? As you have figured out by now, the cliche is true, when you fail to plan, you are planning to fail!
5 Personal Finance Guidelines That Will Guarantee You Become Master Your Personal Finances
1. How do you think about money? Say you come up with an idea to do something. Do you think that will never work? Are you afraid to follow through? Are you scared of losing money or do you see every dollar spent as an investment?
2. How do you manage and invest your time? The average man has at his disposal 6 discretionary hours. This is time they can do whatever they want. No work, no chores etc. Many will watch T.V., attend pricey sports events, spend money on meals at a restaurant and movies, see where I am going with this? Do you do personal finance budgeting?
3. How do you leverage the talents and life experiences you ALREADY POSSESS?
Most people see their experiences as failures. They only talk of how they tried to do something as failed. Thomas Edison failed more than I care to count, and yet he persisted to light the whole world. Many of life’s failures are people who did not realize how close they were to success when they gave up. Thomas A. Edison
4. Do you have a mentor and coach with a proven personal finance curriculum? This is the true measure of your desire for financial freedom. This is where you literally put your money where your mouth is, can’t afford a mentor you say? Well what was the last book you read? Gossip magazines do not count as literature sorry!
5. What do you think is “risky,” and what do you think is “safe and secure”? Most people never break into the realm of the 5% wealthy group who own 95% of the worlds resources because they want to play it safe. They want the money, the fame, the accolades but they feel they should not have to go through the process of creating this wealth. No wonder the internet and other places are full of scams and get rich quick opportunities. Remember this success does not happen overnight, but one night success does happen. Someone once said to me, it takes 3 years to be an overnight success!
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When many people think of finances they automatically think about money. While this is true there are various aspects of finance that many people are unaware of or even have little understanding. It is generally about the way that you manage your money, assets and make investment decisions. The manner in which you handle your money can make the difference between you being financially stable or unstable. If you learn how to discipline yourself and come up with a realistic budget you can manage to survive through financial difficulties.
However, it is easier said than done to execute what few are able to accomplish. It is important that you master your finances no matter how little your income is. You have to gather and research as much as possible so that you are in a position to increase your income while reducing your expenses. There are many sources of information to guide you on what can help you improve your financial situation.
When you are in a position to manage your debt, income and expenses, then you are in a comfortable place. When you want to come up with a proper budget, you have to add up your total income and then your total expenses. This should be a start to track each monthly expense. Look into your credit cards, your loans and find ways to improve your finances. This will help you have a clear picture of what you can cut back on and where you can source some extra income.
Many hardworking people make mistakes because they do not have a clear understanding of how they are spending their money on a monthly basis. When you are dealing with your finances, you have to have a long term target so that you can have security when you are retired.
The Indian immovable property has come of ages. Consumer is the King now and gone are the days of monopolistic behavior. And definitely, if you are the one with sound financial background and impeccable credit record you can strike a better deal with the banks in terms of interest rates and other payment conditions and purchase your dream property without any hassle.
Interestingly, the same criteria is equally applicable on those, as well, who have already availed a loan from a bank. Near about all the major public and private sector banks in the Indian banking system are now offering the option of ‘Balance Transfer’ on housing finance. Often, banks in the housing finance sector tend to increase the interest rates when the benchmark interest rates increase. But, such alacrity is not shown by them in decreasing rates whether the Repo rate comes down or not. In such circumstances, balance transfer help the customer a lot. He can replace the higher rate loan and avail a lower rate one by paying some extra charges. These charges are lower compared to the total payable interest.
What is Balance Transfer and how is it relevant in the housing finance?
There are times you find that the interest rate on your home loan is at a higher level. Take an example. Suppose you were paying at the rate of 10.5 per cent per annum. This rate is quite high in comparison of 9 per cent offered by some other bank. In such cases balance transfer of housing finance comes into rescue. You can trigger off the balance transfer option with your existing bank or lending institution, under which the unpaid portion of your housing finance would get transferred to your desired bank, thereby taking benefit of the difference in the housing loan interest rate.
Things to take care of at the time of balance transfer:
* Tenure of loan amount should be taken care: Ideally, you should consider taking the balance transfer option when the remaining part of your payment period is more than 5-years and in such a case you have the time for speculative gains. There is no profit in transferring the home loan from one bank to another if you end up paying early payment penalty and other processing charges even more than the difference of housing loan interest rate and the amount you had to pay towards interest in the normal condition.
* Early Payment Charges associated with the housing finance scheme: Banks like State Bank of India, IDBI and ICICI offer benefits like exemption of the early payment charges to your existing bank if you transfer the balance. So you must confirm the same with the new lending institution that are they ready to deal with this matter. Otherwise, the deal is not profitable.
* Additional charges involved with the loan amount: You must confirm that the desired amount for your home purchase loan is perfectly at par with the balance you had in your previous bank. It may be the case that that your new bank pays all early payment penalties and processing charges on your behalf and later add the amount to the principal of your housing loan. So, in such case your total owing remain the same and the transfer is not profitable. In this situation, you have to suffer the impact of debt compounding, which does not favour you in the long run.
Seeking balance transfer as a burden reduction option needs the similar degree of caution and study that you undertake while taking housing finance. Definitely with balance transfer, you can save a considerable amount of interest charges under this option once you strike the right chord!