Increasing Profits - The Work of Corporate Finance

Every corporation is run by individuals who are looking to increase their share of profit. One way that they do it is by increasing the value of the shares that they hold. Since it is not easy to come up with ideas to increase the share value, they hire people who know how to do it. These people are called corporate finance professionals and they are experts in corporate finance. 

Corporate finance is an area of finance concerned with increasing the value of shares held by shareholders.

There are three main strategies applied in corporate finance to help with it:

• Financing

Once in a while, a company raises funds to increase the capital for production uses. The way the capital fund is raised will determine how the money is to be paid back, which can be annual, once as a lump sum, or at different intervals. The mix is of debt and equity, but the mix will have a varied ratio depending on how the owners want to pay it back. If it is taken as a loan, then an annual interest and a final pay will be required. If it is taken in exchange for equity, then an annual dividend is paid to them and when the share is bought back, it ends, otherwise, it continues.

• Investment

Another way to increase the value of the share is to make investments. When a company makes investments, it reaps a return on it. This return will be put into the profit of the company, and then after paying taxes will be moved to the account of the shareholders. These investments may be made in the equity market or in assets. In the case of assets, the return will be the excess of cash flow after deducting the expense made on the asset, this excess money is profit for the shareholders. If the company makes investments, then the return is the annual interest received from the investment. Investments are calculated for the rate of interest they will give back before they invested.

• Dividend

This is the last and least used method to increase the shareholder's share value. In this method, when the company earns an excess profit, the excess profit is either distributed as dividends or is used to buy back shares. If it is used to pay dividends, it is not used to pay off loans. The other method is to buy back shares, the shares are paid for and taken back. It will allow other shareholders to receive more profit in the future since the total number of shareholders is lessened.

Fewer shareholders, more profit.

These are ways shareholders try to increase the profit they get. The more the profit the better. That’s the motto.