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Corporate finance and the coronavirus pandemic

Updated: Sep 2, 2022

Corporate finance is a core of financial services dealing with sources of fundings, the capital structure of corporations, and the tools and analysis used to allocate financial resources.

All the activities in relation to raising funds or capital for creating, developing and even acquiring a business are referred to as Corporate finance. It also encompasses effectively utilizing the available resources and minimizing Expenditure.

It acts as a critical intermediary process between the organization and the capital market, directly impacting the monetary or financial status of that organization. It plays an important role in the optimum wealth management, distribution and return generation

Types of Corporate Finance

Corporate financing includes raising funds via either:

  • Equity funds

  • Debt funds

The types of corporate finance also emphasize the difference between ownership and management, the basis for the development of strategies and procedures under this concept.

Equity funds - This includes Funds invested by owners themselves for the development of their business. This may include preference share capitals, equity and retained earnings.

Debt funds - They are also called external finance. These funds come in various forms including corporate loans, private financing debentures, etc. Debentures are generally issued to the common masses for refinancing, while on the part, institutional lenders are considered to be the primary source of private finance and businesses have to pay commercial rates of interest on the lent amount.

Scope of corporate finance

It is related to the allocation of capital expenditure over a given period of time and the decision related to financing investment and dividend distribution. These decisions are made by the financial department of an organization affecting the timing and size of the flow of funds or future cash flow. It includes:

  • Investment decisions including analysis of different investment types in order to reach the best available alternative.

  • Financing decisions that lengthen to raising of funds or capital through multiple sources to restructure business finance.

  • Dividend decisions that include analysis of stockholders’ returns on the basis of amount and time.

  • Managing of working capital for efficient everyday running of the business.

  • Developing financial strategies for smooth policy implementations, reflecting the working of advanced corporate finance.

Corona effect

The adverse financial impact of covid-19 could potentially make the corporate treasures of business suffer in an odd sense.

The Corona crisis has become a highly disrupting economic challenge for the global economy. The quick spread of the pandemic virus has chained a negative effect and shock in both a negative supply and a negative demand across the economy at large. Hence, top priority would be to save and secure the liquidity of businesses in order to prevent caus.

Demand and supply are considered to be the origin for estimating the economic growth and policy measures. In the current scenario, where economies globally have sustained severe damage due to the Pandemic Corona, reducing the scope for effective economic policies. The macroeconomic effects recorded till date will primarily be felt in corporate finance due to the liquidity congestion followed by the dwindling sales and ongoing costs. That is where economic policy must start.

So what can be done on the economic policy side?

Opting the following measures will help reduce and control the odd effects on the businesses:

1 - Stabilise corporate liquidity.

2 - Stabilise financial market liquidity

3 - Stabilise corporate liquidity through tax deferral.

4 - Stabilise employment and labour income through short-time allowance.

Effective Corporate financing will help corporates stand the difficult time and will allow them to pave the way for future gains.

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