Corporate Finance Basics for Agribusiness - Agribusiness Education and Research International

Concepts of Corporate Finance Basics for Agribusiness

Finance may be defined as the money-management process. It encompasses the procurement and proper use of funds as capital. Consequently, financial management is concerned with the process, institutions, markets, and instruments involved in the transfer of money between individuals, businesses, and government units. Corporate Finance Basics for Agribusiness required for agribusiness financial manager.

Major Corporate Finance Areas

A review of career opportunities in finance can summarize the major areas of finance. These possibilities can be broadly classified as financial services and managerial finance:

Financial Services

Financial services are the finance area concerned with designing and delivering advice and financial products to individuals, businesses, and units of government. It includes a variety of interesting career opportunities in banking and related institutions, personal financial planning, investment, real estate, and insurance areas.

Managerial Finance

Management finance deals with the decisions that companies make regarding their cash flows. It is concerned with the financial manager’s duties within the business enterprise. Financial managers handle the financial affairs of any type of business actively. They perform such varied financial tasks as planning, extending credit to clients, assessing proposed large expenditures, and raising money to fund the firm’s operations.

Decisions relating to financial management

Financial decision is the process of benefiting from a financial understanding of the individuals, business firms, and government units. Financial judgments include:

Investment decision: a) selling, b) analyzing individual securities, and c) determining the optimal securities mix for a given investor are three major functions in the investment area.
Financing decision
Dividend decision
Liquidity decision

Furthermore, the decision on financial management deals essentially with the following:

A) Capital budgeting-This is the process of planning and managing long-term investment by a company.

B) Capital structure– A mixture or composition of equity and long-term debt that a firm maintains.

C) Working capital- A company has short-term capital requirements.

Significance of Corporate finance

The importance of financial management follows:

i. Fundraising

ii . Fund allocation

iii. Profit forecasting

iv. Understanding stock markets

Goals of a Firm / Corporation Financial Manager

The main goals of a firm’s financial manager are:

i. The maximization of profit

ii . Maximization of stock prices

iii. Shareholders’ wealth maximization

iv.Social Competencies

v.Social wellbeing

Agency Costs

Maximize the wealth and minimize the incurred agency costs of the agency’s problem shareholders. There are the costs of maintaining a corporate governance structure monitoring management behavior ensuring against dishonest management acts and providing financial incentives for managers to minimize the share prices.

Agency Issue

There is potential for conflict of interest between the stockholders and a firm’s management. It implies the problem of agencies is a potential conflict of interest between-

i) the external shareholders and managers, or

ii) Shareholders and creditors

It is really an actual problem to prevent managers from acting in their own best interests rather than in the best interests of the owners of the large companies. This is called an agency issue because managers are hired to act on behalf of the owners as agents.

Corporation Governance

The system used for directing and controlling a corporation is called Corporate Governance. It defines the rights and responsibilities of key corporate participants such as shareholders, boards of directors, officers and managers, and other stakeholders, as well as the roles and procedures for corporate decision making in corporate finance sectors. Corporate governance also specifies the structure through which the corporation sets goals, develops plans to achieve those goals, and establishes performance monitoring procedures.

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