Tuesday, October 19, 2010
minimize financial risk in order to improve their performance that is known as Corporate Finance.
It actually deals with the financial ratios and other financial issues of corporate level. Companies always wants the solutions of their financial issues. Such like Tax, risk and other issues related with capital budgeting. Here i will discuss the solutions of Corporate Finance. I will explain briefly here that how we can try from the heavy tax by doing some change in leverage and owners equity. But before talking about the solutions of Corporate Finance we need to know that what type of issues can be raised at corporate level, Further more we will see that how these issues can put impact on the performance of companies. The first issue is of Tax. No company wants to pay a big amount as a tax they just want to minimize their tax by adopting different techniques.
How To Minimize The Tax:
Every company always try to minimize the tax. Tax is basically depend upon the value of the company and in the value of company Both Debt and Equity is included. Higher the value higher will be the tax amount impose on the company. The Companies who are without leverage always have to pay greater amount of tax as compared to those companies who contains leverage. So Debt occurs as a Tax Shield for the companies which contains Debt. So If any company want to minimize the burden of tax they should not be Debt free and should must take some Debt from the Financial institutions.
Second problem is about the Risk. As for capital budgeting heavy investment is involved, as we are dealing with fixed assets so we always try to minimize the risk.
How to Minimize The Risk:
For Minimization of Risk companies should forecast the situation and they should analyze the Risk that how they can minimize the risk regarding with their purchase of fixed assets. Moreover they should forecast the profit which can be given by that capital budgeting. They should never focus on the large profit from their heavy investment instead of this they should focus on on small risk, As we all know that higher the profit higher would be risk.
Third Issue which could be raise for the companies is actually of Time Value Of Money(TVM). I am expecting that everyone who is reading this article would be familiar about the time value of money. So the solution of this problem is this that companies should not leave their cash in the idle form they must have to invest their canst in some financial instruments such like T bills and Bonds etc, They can buys the shares of other companies also. This is the only solution to overcome the problem of time value of money.
These are the few problems which frequently faced by the companies, and the corporate level. Related with that i have discuss solutions of corporate finance as well. I think this article would be helpful for those who are beginners or who have little bit practical information about the problems of Corporate Finance.