Corporate finance

Welcome to this lecture on corporate finance. Corporate finance focuses on how companies manage financial resources to create value for shareholders and stakeholders. The main goal is to maximize firm value, often measured by share price. This field covers decisions on raising capital, investing it, and managing daily finances. Firms must also consider environmental and social impact. Every decision from investing to profit allocation affects the business' value and sustainability. One of the most important strategic decisions in corporate finance is determining a company's capital structure, the mix of debt and equity used to finance operations. An optimal structure balances the potential for increased returns with the risk of financial distress. Using more debt can leverage shareholder returns, but exposes the firm to mandatory interest payments. Equity financing is less risky for the company, but can dilute control and future returns. The weighted average cost of capital or WACC, blends the costs of debt and equity based on their proportion and measures what a company must earn to satisfy its financiers. Another cornerstone of corporate finance is deciding which projects or investments to pursue. This process, known as project selection or capital budgeting, channels a firm's resources into ventures that add the most value. Managers use quantitative criteria such as net present value, internal rate of return, and payback period.