Difference Between Corporate Finance & Financial Management
A corporation's financial manager, typically the chief financial officer, or CFO, uses financial management to manage the corporate finance functions and transactions. Corporate finance covers the financing and investing activities of a company. Financial management is the process that corporations use to manage and direct resources. Corporate finance and financial management are intertwined.
Corporate finance comprises the operational financing and investing decisions a company makes. Corporate finance includes the financial and investing activities a firm engages in through public and private markets. Transactions that fall under corporate finance typically impact a corporation's business or structure. These financial transactions include mergers and acquisitions, leveraged or management buyouts and sales of divisions or business lines. Large public companies or private equity firms may use complex transactions to achieve an objective and complex words to describe their actions, but the underlying principles are straightforward.
If a company has revenue of $10 million and wants to reach $30 million in three years, it has a number of options. It may issue various types of debt or equity to fund this growth . Alternatively, it may acquire a competitor or fund a joint venture partnership. All of these actions, and the analysis and consideration of the options, fall under corporate finance.
Financial management is the creation and implementation of a financial system or principles to drive shareholder value through appropriate resource utilization and proper decision-making. Financial management enables a company to achieve its financial and operational goals by managing, financing and investing in a variety of assets. Financial management is key to any company, no matter its size. Smaller companies may focus on cash flow management and debt financing. Larger companies may focus on asset acquisition and resource deployment.
Financial management involves the acquisition and proper allocation of funds across a firm's operations and so involves setting policies. A company with a strong financial management process involves individuals from other areas of the firm in its financial decision-making, including purchasing, sales, production or manufacturing and human resources. Considering all facets of the organization's needs and concerns enables the individuals in charge of the financial management process to make more informed decisions.
In any firm, the person ultimately responsible for both the firm's corporate finance activities and the financial management function is the chief financial officer or CFO. In practice, he may have another title. Many smaller firms that do not engage in a lot of financing activities do not have CFOs. Instead, they have controllers — individuals with strong accounting backgrounds who compile the company's accounting and financial data. CFOs tie the firm's financial management to its strategy and leverage corporate finance activities to help a company achieve its operational and financial goals.