# Corporate Finance: Definition and Activities

## What Is Corporate Finance?

Corporate finance is a subfield of [finance](https://www.investopedia.com/ask/answers/what-is-finance/) that deals with how corporations address funding sources, capital structuring, accounting, and investment decisions.

Corporate finance is also often concerned with maximizing shareholder value through long- and short-term financial planning and implementing various strategies. Corporate finance activities range from capital investment to tax considerations.

### Key Takeaways

*   Corporate finance is concerned with how businesses fund their operations to maximize profits and minimize costs.
*   It deals with the day-to-day demands on business cash flows and long-term financing goals (e.g., issuing bonds).
*   Corporate finance also involves monitoring cash flows, accounting, preparing financial statements, and taxation.
*   Determining whether or not to issue a [dividend](https://www.investopedia.com/terms/d/dividend.asp) is another corporate finance activity.

![Corporate Finance](https://www.investopedia.com/thmb/vird3zD-f_x5eT5kJmcPT91fuoc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/corporate-finance-Final-90e2e40f344a456c8cd371f226cfa6b4.jpg)

*— Investopedia / Julie Bang*

## Understanding Corporate Finance

Corporate finance has three main areas: capital budgeting, capital financing, and working capital management. Capital budgeting is the process of prioritizing funds toward the most profitable projects. Capital financing is determining how a company's investments and endeavors will be financed. Working capital management is concerned with cash flow for day-to-day operations and maintaining [liquidity](https://www.investopedia.com/terms/l/liquidity.asp).

While not necessarily an area of corporate finance, dividend distributions to shareholders are also a main concern because, in a publicly-owned company, shareholders are usually owners and expect [returns](https://www.investopedia.com/terms/r/return.asp) for their investments.

## Corporate Finance Activities

Corporate finance tasks include capital investing, financing, and liquidity management.

### Capital Investments

The capital investment decision process is primarily concerned with [capital budgeting](https://www.investopedia.com/terms/c/capitalbudgeting.asp).

Through capital budgeting, a company identifies capital expenditures, estimates future cash flows from proposed capital projects, compares planned investments with potential proceeds, and decides which projects to include in its capital budget.

Making capital investments is perhaps the most important corporate finance task and can have serious business implications. Poor capital budgeting (e.g., excessive investing or under-funded investments) can compromise a company's financial position, either because of increased financing costs or inadequate operating capacity.

> **Important**
>
> Corporate financing includes the activities involved with a corporation's financing, investment, and capital budgeting decisions.

### Capital Financing

Corporate finance also involves sourcing capital in the form of debt or equity. A company may borrow from commercial banks and other financial intermediaries or may issue debt securities in the capital markets through [investment banks](https://www.investopedia.com/terms/i/investmentbank.asp). A company may also choose to sell stocks to equity investors, especially when it needs large amounts of capital for business expansions.

Capital financing is a balancing act involving decisions about the necessary amounts of debt and equity. Having too much debt may increase [default](https://www.investopedia.com/terms/d/default2.asp) risk, and relying heavily on equity can dilute earnings and value for early investors. In the end, though, capital financing must provide the capital needed to implement capital investments.

### Short-Term Liquidity

The goal of capital management is to ensure that there is enough liquidity in the short term to carry out continuing operations. Short-term financial management concerns current [assets](https://www.investopedia.com/terms/a/asset.asp) and current [liabilities](https://www.investopedia.com/terms/l/liability.asp), working capital, and operating cash flows.

A company must be able to meet all its current obligations when they are due. This involves having enough current liquid assets to avoid disrupting a company's operations. Short-term financial management may also involve getting additional credit lines or issuing [commercial paper](https://www.investopedia.com/terms/c/commercialpaper.asp) as liquidity backup.

## Working in Corporate Finance

Corporate finance attracts many job seekers. In fact, there's typically a lot of competition for corporate finance jobs.

According to the job site [Indeed](https://www.investopedia.com/articles/personal-finance/020215/indeed-vs-linkedin.asp), these are the national average annual salaries for the following corporate finance jobs as of 2025.

*   Chief financial officer: $144,563
*   Financial planning and analysis manager: $120,148
*   Cost analyst: $78,672
*   Financial analyst: $73,812
*   Treasurer: $73,856
*   Corporate accountant: $69,655

## What Do Corporate Finance Departments Do?

Corporate finance departments focus on making solid decisions for profitable financial results. Corporate finance involves activities that relate to the budgeting of capital, the debt and equity used to finance operations, management of working capital, and shareholder dividends.

## What Is the Difference Between Corporate Finance and Finance?

Corporate finance is a subfield of finance. Other subfields include public (or government) finance and personal finance.

## What Are the Main Areas of Corporate Finance?

The main areas of corporate finance are capital budgeting (e.g. for investing in company projects), capital financing (deciding how to fund projects/operations), and working capital management (managing assets and liabilities to operate efficiently).

## The Bottom Line

Corporate finance is a subset of the field of finance. It involves proper budgeting, raising capital to meet company needs and objectives with debt and/or equity, and the efficient management of a company's current assets and liabilities.

> **Article Sources**
>
> 1.  Indeed. "[11 Careers in Corporate Finance](https://www.indeed.com/career-advice/finding-a-job/careers-in-corporate-finance)."