Corporate finance and financial management activities are two separate functions that often may interrelate. Financial management is a business process that ensures that operating data is correct, complete and recorded in accordance with regulatory guidelines, corporate policies and industry practices. Corporate finance is a business function that helps a company's top management evaluate operating data and determine liquidity needs.
What is Corporate Finance?
Corporate finance activities help a company's senior managers evaluate financial statements, assess financial performance and then determine levels of cash needed. In case of cash shortage, a corporate finance specialist may recommend appropriate financing alternatives to top management. Let's say Mr. A., a corporate finance specialist at Company A.B.C., notes that the company may experience liquidity problems in the next six months. Mr. A. may advise top management to apply for a loan or raise cash on financial markets.
Corporate Finance Functions
A corporate finance specialist studies a company's financial statements, compares historical and current data, detects business trends and then recommends adequate financing sources to corporate leaders. A corporate finance specialist often may work with an investment banker to gauge liquidity needs and determine the best ways to raise cash. A firm may issue stocks or bonds on financial markets to finance operations. Alternatively, a firm may apply for a bank loan, a line of credit or an overdraft agreement to raise short-term financing.
What is Financial Management?
Financial management is a business process that allows a company to record operating transactions and then prepare financial statements that are "fair," complete and in compliance with generally accepted accounting principles (GAAP) and industry practices. ("Fair" means accurate in accounting parlance.) Complete financial statements include a balance sheet, a statement of income, a statement of cash flows and a statement of retained earnings. Financial management often may be useful in financial planning and decision-making processes.
Financial Management Activities
A financial management specialist prepares fair and complete financial statements and then ensures that internal controls, policies and procedures around financial reporting mechanisms are adequate and functional. A financial management specialist also may analyze operating data and business performance to recommend investment ideas to a firm's senior management. For example, Ms. E.T., a financial management specialist at Company A.B., may review the company's balance sheet and advise management to reduce customer credit terms from 90 days to 30 days to increase short-term cash.
Corporate Finance Versus Financial Management
In short, corporate finance specialists analyze financial data to anticipate cash problems that a company may face and then recommend funding alternatives to senior management. Financial management specialists record operating data, prepare financial statements, perform financial planning duties and then help management make decisions. Both functions are separate but may be interrelated, depending on business needs. For example, a company engaged in discussions to purchase another company (acquisition transaction) may need to assess its financial standing and then seek funding to finance the transaction.