Kavan Choksi Talks About Corporate Finance In Leveraging Businesses
by Arnab Dey Finance 28 September 2023
Corporate finance is an intriguing subgenre of finance that stresses how corporations address the structure of capital, source of finance, accounting, and key investment decisions.
As one of the most vital components of a company’s operations, Kavan Choksi, a business management and wealth consultant, says corporate finance always strives to maximize the value of the shareholder through a series of financial planning of different scales and implementing diverse strategies.
Corporate finance operations are wide-ranging and complex, from making important capital investment decisions to considering tax implications. It’s a field that continually evolves, with new strategies and techniques always under development, making it an exciting area of finance in which to work.
Understanding Corporate Finance
Departments in Corporate finance are critical in managing a company’s finances and investment decisions. In essence, they act as financial gatekeepers and stewards, helping to ensure that the company’s resources are used wisely and that investments generate the desired returns.
One key area of focus is deciding which investment opportunities are worth pursuing and how to fund them. Corporate finance departments must determine whether to rely on equity, debt, or some combination thereof.
Another important responsibility is managing the company’s current assets, liabilities, and hold over inventory. Ultimately, these decisions impact the company’s bottom line and ability to create value for its stakeholders.
As a result, corporate finance departments are typically headed by experienced financial professionals, often with the title of chief financial officer (CFO).
The 3 Main Areas Of Corporate Finance
Kavan notes three main areas of corporate finance necessary to achieve company goals:
Capital budgeting is all about making investment decisions that will enhance the business’s profitability in the long run.
Capital financing involves determining the most appropriate funding sources for various projects or operations.
Working capital management is concerned with managing current assets and liabilities to ensure the organization can operate efficiently and effectively.
Identifying Corporate Finance Activities
There are three major elements one has to consider when pinpointing corporate finance activities.
1. Corporate Investing
Few departments are more important than corporate finance. These departments oversee all financial activities and capital investment decisions, which means they are responsible for constantly seeking new investment opportunities to allocate capital effectively.
Kavan considers it a difficult task, as investing is a major responsibility that requires careful planning and consideration.
To make informed decisions, corporate finance teams use capital budgeting techniques to identify and analyze capital expenditures and cash flows. By estimating future returns on planned investments, these teams can make sound investment decisions that provide their organizations with the highest possible return.
2. Capital Financing
Corporate finance is the department responsible for determining the most cost-effective way of acquiring capital from banks and other financial organizations. One common option is selling stocks or equity to investors, who can quickly raise large sums of money. However, balancing equity and debt is vital for a company’s financial health.
Excessive debt can lead to a higher risk of default, while relying too much on equity can lighten ones’ earnings and, at the same time, bring down the value of early investors’ holdings. Ensuring a business has sufficient short-term liquidity is also a key focus for corporate finance.
It ensures that a business can operate day-to-day while meeting all current liabilities. Corporate finance is critical in managing a business’s finances and ensuring its long-term success.
3. Return of Capital
As companies grow and generate profits, one of the key responsibilities of corporate finance departments is to determine how best to allocate the excess capital. It’s a delicate balance between returning value to shareholders and investing in future growth opportunities. One critical aspect of this decision-making process is whether or not to pay dividends.
By distributing profits to shareholders, companies can reward those who have invested in their success while potentially attracting new investors. However, Kavan emphasizes retaining excess capital can also be a powerful tool for funding mergers and acquisitions, research and development, and other investments that can drive long-term growth.
Another option for returning value to shareholders is to pursue stock buybacks. This strategy can help boost the value of existing shares, ultimately delivering a return on investment for shareholders. For public companies, deciding whether or not to pursue stock buybacks or pay dividends is a complex decision that must be carefully weighed to ensure maximum value is returned to shareholders.
The 4 Crucial Elements Of Corporate Finance
There are four major elements to corporate finances, and they include:
Capital Financing
Capital financing is a critical part of any strategic plan for a business. This process involves determining the best approach to finance investments, focusing on optimal levels of debt and equity.
Capital Budgeting
Capital budgeting is essential for businesses seeking to grow and maximize profitability. By analyzing present and future investment alternatives, the process helps measure risk-return ratios concerning organizational goals. According to Kavan, capital budgeting mainly aims to identify profitable investment proposals while considering potential risks.
Dividend Distribution
As a public company, it is imperative to understand the importance of keeping shareholders happy. It stems from the fact that these individuals have invested money into the business and ultimately have a say in how profits should be allocated.
Working Capital
Cash flow management is the backbone of any successful business. It is the lifeblood that keeps an organization running and propels growth. Adequate cash flow management ensures that a business can smoothly handle day-to-day operations without running out of funds.
Kavan Choksi is an investor, wealth consultant, and business manager. Working strategically with organizations across consumer goods in luxury and retail markets, he leverages his expansive were experience to help clients turn around and enliven their businesses. With his expertise in economics and finance, Kavan has developed a thrust from within to invest. At the same time, he also motivates helping others to do more with their money. His thoughts and insights on publications such as CNBC, Fox Business, Forbes, Business Insider, CEOWORLD Magazine, International Business Times, Financial Express, and The Epoch Times. Kavan is also a regular contributor to Nasdaq, which has greatly interested people. There, he shares his expert insights on the business world.
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