Importance of Personal and Corporate financial planning
Everyone’s financial life would be incomplete without financial planning. It’s the key to financial freedom, and it helps you see the “big picture” when it comes to defining long- and short-term life objectives and sticking to them. A good financial plan lays out your specific situation, objectives, and risk tolerance, as well as serving as a guide to help you choose the best assets to suit your needs, wants, and aspirations.
Marriage, planning for children, paying for college, receiving an inheritance, buying a new house, divorce, and retirement are just a few of the events that may necessitate the usage of a financial plan. Having a financial plan in place at any stage of your life, on the other hand, can help you see if you’re on track financially and can alleviate the stress that comes with uncertainty about your financial future.
Some of the additional advantages of having a financial plan include:
• It allows you to manage your income more effectively, which is one of the additional benefits of having a financial plan.
• Assists you in developing a budget that accounts for your expenses, savings, tax payments, and other financial transactions.
• Enables you to assess and consider strategies to improve your cash flow and determine your spending habits. As your cash flow increases, you’ll be able to investigate investment alternatives that will help you enhance your finances.
• Provides financial stability for you and your family, which helps you achieve peace of mind (i.e., determining the amount of life insurance required to care for your family in the event of unforeseen circumstances)
• It makes it easier for you to make plans to boost your savings;
• Assesses your financial objectives and helps you better understand how your choices effect your financial well-being.
• Outlines the assets and liabilities that can be connected with generating revenue, as well as how to reduce future financial implications or responsibilities.
What is Corporate Finance?
Corporate finance is concerned with a company’s capital structure, as well as its financing and management’s efforts to raise the company’s worth. Corporate finance also includes the tools and analyses used to prioritize and distribute financial resources.
Corporate finance’s ultimate purpose is to optimise a company’s value while balancing risk and profitability through resource planning and implementation.
Corporate finance is influenced by three key activities.
- Capital Planning & Investing
- Capital Financing
- Dividends and Capital Returns
What role does a company’s capital structure play in corporate finance?
A company’s capital structure is crucial to optimising its value. It might have a mix of long-term and short-term debt, as well as preferred and common equity in its structure. The liability-to-equity ratio is commonly used to assess how well-balanced or hazardous a company’s capital financing is.