Business firms and government organizations do need to implement various programs to achieve their goals. Implementing programs require resources such as natural resources, human resources and financial resources. Effectiveness in the management of financial resources is key to optimize the use of natural and human resources.In the case of individual, management of financial resources or funds is known as personal finance. The same is called by public finance in government organizations. Corporate finance is used to refer to the management of funds in the context of business firm. Thus, finance as a discipline is classified into three domains: public finance, business finance and personal finance. Public finance is the management of funds for governments: both local government and central government. Traditionally, it deals with the management of revenue and expenditure of government. Personal finance refers to the management of funds of and individual.
Generally, business finance, corporate finance and financial management, and managerial finance are used as synonym of each other. At the early stage of the development of finance as a separate discipline, academics and practitioners used business finance. Later on, they used corporate finance instead of business finance. The rationale behind the use of corporate finance was the dominance of corporate form of business organization in the business world. Traditionally, corporate finance used to focus only on the procurement of funds required to set up a company or corporation and expansion of its activities. Accordingly, the responsibility of the financial manager was limited only to estimate the financial requirements of a corporation and raise funds to meet the projected financial requirement.
Now, corporate finance is not limited to the fund raising activities; it has widened to cover the acquisition, financing and management aspects of a corporation's assets. This approach to the concept of corporate finance is known as modern concept.
In short, corporate finance is the study of the ways to address the following issues in a firm.
1. What long-term investments should a firm take on ?
2. Where the firm will get the long-term fund to pay for investment ?
3.How the firm will manage its everyday financial activities such as collecting from customers and paying to suppliers.
4. How the firm should go about deciding upon payment to stockholders ?
Therefore, corporate finance deals with acquisition and financing management of a firm's assets that leads to shareholders wealth maximization.