Talk:Corporate finance

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[edit] Lead section

"The two are related in that firm value is enhanced when return on capital, a function of working capital management, exceeds cost of capital, which results from the longer term, capital decisions."

This is pretty confusing to me. It seems that return on capital and cost of capital are interrelated and that they are both impacted by long-term decisions and short-term decisions, and by financing decisions and investment decisions.

If there are no objections, I am tempted to delete this sentence, since I don't know how to clarify it and it is not followed up on elsewhere. Thanks --Chris vLS 20:08, 13 Dec 2004 (UTC)

It is a valid sentence, so don't delete it. I can't think of a way to make it more clear at the moment, but I will see what I can do later if someone else doesn't improve it. - Taxman 22:10, Dec 13, 2004 (UTC)

Im not sure exactly what you dissagree with. That a firm's value is enhanced when its return on capital is greater than its WACC I think is uncontrovertial. Oh, I see the problem. Would you feel better if it was changed to say "PRIMARILY a function of working capital management" and "PRIMARILY results from longer term capital decisions"? That allows for the effect that working cap. man. might have on the WACC and also the effect that capital decisions will have on ROE. Even that isnt quite right, maybe it should just be deleted as you suggest. mydogategodshat 22:25, 13 Dec 2004 (UTC)

Currently:

Corporate Finance is the specific area of finance dealing with the financial decisions corporations make, and the tools and analyses used to make the decisions. The discipline as a whole may be divided between long term, capital investment decisions , and short term, working capital management. The two are related in that firm value is enhanced when return on capital, a function of working capital management, exceeds cost of capital, which results from the longer term, capital decisions. Corporate Finance is closely related to managerial finance, which is slightly broader in scope, describing the financial techniques available to all forms of business enterprise, corporate or not.

Proposed:

Corporate Finance is the specific area of finance dealing with the financial decisions corporations make, and the tools and analysis used to make the decisions. The discipline as a whole may be divided between long-term and short-term decisions and techniques. Capital investment decisions comprise the long-term choices about investments, financing, and dividend policy. Short-term corporate finance decisions are called working capital management. The two share the same goal of enhancing firm value by ensuring that return on capital exceeds cost of capital. Corporate Finance is closely related to managerial finance, which is slightly broader in scope, describing the financial techniques available to all forms of business enterprise, corporate or not.

It's not perfect, would like something that explains, rather than rattles off terms, but it is better that current, I think. Return on capital and cost of capital are the function of both long and short term decisions, so the current text is misleading, I think.

Thoughts? --Chris vLS 19:37, 14 Dec 2004 (UTC)

Ok, second try. A bit long, but it actually summarizes the structure of the article now.

Corporate finance is the specific area of finance dealing with the financial decisions corporations make, and the tools and analysis used to make the decisions. The discipline as a whole may be divided between long-term and short-term decisions and techniques. Both share the same goal of enhancing firm value by ensuring that return on capital exceeds cost of capital. Capital investment decisions comprise the long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. Short-term corporate finance decisions are called working capital management and deal with balance of current assets and current liabilities by managing cash, inventories, and short-term borrowing and lending (e.g., the credit terms extended to customers).

Corporate finance is closely related to managerial finance, which is slightly broader in scope, describing the financial techniques available to all forms of business enterprise, corporate or not.

Chris vLS 21:23, 14 Dec 2004 (UTC)

I see no problem with the new wording. mydogategodshat 02:28, 15 Dec 2004 (UTC)

Thanks! Made it so. --Chris vLS 21:35, 17 Dec 2004 (UTC)