Corporate finance is a financial concept that deals with the financial activities of a corporation. Under this strategy the managers of corporations take actions to increase the value of the firm to the shareholders. The main aim of corporate finance is to increase shareholders value. Corporate finance strategy enables the managers to balance capital funding. It maximizes shareholders value through long term and short term financial planning. Everything associated with capital investment to investment banking is the matter of discussion under corporate finance strategy.
Some objectives of corporate finance strategy are following:
- Capital Investment Decision is one of the crucial features of corporate finance strategy. It mainly deals with the accumulation of capital and its utilization towards investment. Here the investment is importantly concerned with capital budgeting and capital expenditures.
- Financing Decision is another important concern of corporate finance. This aspect deals with financial management which ensures the proper utilization of finance.
- Liquidity Decision is a very significant concern of corporate finance. It ensures the enough liquidity to carry out active operations of a corporation. It is also concerned with the current assets and liabilities of a corporation. Moreover, it ensures a corporation with sufficient amount of liquid assets.
- Corporate Value Maximization is a very important goal of corporate finance strategy. The maximization of corporate value is possible through proper short term and long term planning under corporate finance strategy.
Moreover, it is clear that corporate finance strategy is one of the important sectors of finance domain. It increases the value of a company as well as the value of sharegolders. Every small or big organization needs to apply this strategy to survive and for better financial growth development of a corporation.
In finance, the term disinvestment means to the withdrawal of invested money by selling the assets or major production tool. Disinvestment reduces the unexpected loss of a company, a business initiative or even government. When an investor observes that their investments do not fetch their desired profit and it will jog them toward loss in future then they intends to make disinvestment. Sometimes, an investor attempts to make disinvestment for the sake of funding elsewhere expecting more profit. Disinvestment is often done from economic, political or social aspect.
Disinvestment activity of the government has become a crucial topic of India. The Government can sell its enterprises or disinvest a part of its equity capital held by it to the private sector companies or in the open market.
There are many reasons behind the disinvestment made by the government of India:
- The government wants to develop resources to reduce budget shortage.
- The government requires resources to make investment in infrastructure, social sectors such as education, public health and poverty alleviation attempt.
- The government leads to disinvest to avoid financial loss: as it increases the efficiency in utilization of capital.
- Another important use of disinvestment of public enterprises is the resources raised from them can be used to pay off past debts of the government and thereby reducing the interest burden of the government
Disinvestment of public asset to private sector is profitable because this will enable these enterprises to attract private foreign investment to develop joint ventures. The government disinvested around two lakh crore of PSU considering following significance:
- To solve fiscal problem
- To develop economic growth
- To develop social strategy
- Reducing government rate
- To develop private sector enterprise
- To encourage investment
Moreover, disinvestment policy taken by Indian government develops private sector enterprise and also ensures a handsome profit for the government.