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Corporate Finance: What is the role of financial technology?

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Maulik Vadariya
Corporate Finance: What is the role of financial technology?

Have you ever heard that the financial sector is the heart of a company? Well it's true!

This department is responsible for pumping resources to the different areas of a business. In other words, the health and balance of organizations are directly linked to corporate finance.

In fact, good financial practices are closely related to sustainability, scalability and business growth. These facilitate internal operations and encourage solutions that are increasingly aligned with consumer demands.

For this reason, we have prepared this article where we address corporate finance presenting the following points:

·       Concept

·       Objectives

·       functions and features

·       Advantages of efficient management

·       optimization measures

·       Importance of technology

Let's go!

What is corporate finance?

For many professionals, the appearance of companies is directly related to the birth of modern capitalism, in the 16th century. However, the offer of products in exchange for monetary compensation is a much older process, it is practically a medieval creation.

As you can see, the control of finances is an issue that has concerned humanity for a long time.

We conceptualize business finance as a set of procedures whose objective is to balance the accounts, guarantee the provision of productive means and promote business growth.

That is why decisions regarding corporate finance must be made in a more strategic manner in terms of feasibility analysis and effectiveness of internal actions. There are tools, studies and research whose data provide relevant financial insights to design and implement plans that are much more effective and aligned with the availability of business resources.

Within the financial sector, discussion, negotiation and decision to optimize the following aspects stand out:

·       Cash flow organization

·       Investment need/opportunity

·       Solvency in the short term

·       liquidity demands

·       Possibility of carrying out new projects

·       Optimization of income and profitability

Taking into account his approach, we can say that corporate finance is based on the principle of maximizing the value of a business.

It goes without saying that the finance leader's job is to ensure that the funds needed to run and activate the business are available to provide key resources for operations and business development.

Financial objectives from the perspective of the indicators

The main purpose of corporate finance is to increase the market value of the company, increasing the financial return for shareholders.

In other words, its main objective is to maximize the benefits of the business to reduce the risks inherent in the operation and development of the company.

For example, to mitigate the risks derived from the abusive use of resources, the financial area must plan budgets for the different sectors. By rationalizing resources, cost savings are generated.

Likewise, this department is in charge of defining indices that allow the company to evaluate its capacity to self-finance its activities, the results obtained in its sales actions and the effectiveness of its strategies.

There are objectives that can be met more easily thanks to the help of the following 4 groups of financial indicators:

Solvency

Its indicators show the ability to maintain commercial activity with a long-term horizon. Of course, for this it is necessary to comply with business obligations and debts.

The main financial objective related to this indicator is to have sufficient current assets to meet current liabilities, ensuring business continuity.

Liquidity

Indicates the immediate potential for assets to be turned into cash without losing value. The good liquidity of an asset means that it can be easily sold, so it turns into cash quickly.

In general, companies have as liquidity objectives:

·       Generate savings to pay for future projects

·       Have assets that allow to attract resources for emergencies

Cost effectiveness

Profitability indicators measure the efficiency and effectiveness of corporate management mainly in terms of cost control and conversion of sales into profits.

Some of its main objectives are:

·       Optimize investment security

·       Increase the ROI of the business by offering solutions adapted to the demands of its public

·       Increase business profit

Indebtedness

The belief that debt ratios present negative data is common. However, when working to control the level of these metrics, more room for movement in trades becomes feasible.

This occurs mostly in the early stages of implementing a business. In this way it is possible to increase the productive potential without sacrificing the patrimony.

Regarding the main financial objectives related to indebtedness, the following stand out:

·       Reduce the need for loans and financing

·       Avoid financial commitments that the company cannot meet

·       Mitigate the incidence of fines and financial losses due to non-compliance

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Maulik Vadariya
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