Corporate Finance: Financial Control

Abstract

Corporate finance is concerned with financial decisions made by corporations. These decisions can be grouped easily into two major categories: investment decisions and financing decisions. Investment decisions and financing decisions must contribute together to create value for the company's shareholders. In order to make optimal financial decisions in keeping with the major objective of the firm (i.e., maximizing its shareholders' wealth), the financial manager adopts some analytical tools in the analysis, planning, and control activities of the firm. In fact, financial analysis is a necessary condition for making appropriate financial decisions. Accordingly, financial control can be defined as the whole of activities and tools that enable financial managers to carry out financial analyses for purposes of internal and external control. Since they need to keep under control both the profitability of capital invested and the cost of resources raised from investors, financial managers make use of an integrated system of analyses that includes financial statements, ratios, financial planning, investment valuation, and capital structure analysis. Each of these tools plays a key role with reference to the financial control activity, providing the financial manager with a wide range of information that helps the company's investment and financing decisions.