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Corporate finance affects consistently the development of business strategy and the organizational performance. This impact is obvious not only at the stage of planning and decision-making process but also at the stage of the implementation of the business strategy and plan. In this regard, working capital management, an integral element of corporate finance, is particularly significant (Ohlson, 2002). The working capital management defines the effectiveness of the use of financial resources available to companies. At the same time, the adequate use and assessment of the available financial resources allows companies developing effective business strategies. In fact, it is obvious that companies cannot implement their business strategies and plans, if they do not have sufficient financial resources. On the other hand, the capital should be used effectively that means that companies should use their financial resources to maximize their corporate value and revenues. What is meant here is the fact that companies can have free financial resources at the moment and they should invest these financial resources to obtain some revenues. Otherwise, the capital will be used ineffectively. In such a context, the working capital management becomes crucial because it manages the capital and uses financial resources to increase the corporate value of a company and its revenues. Therefore, the quality of corporate finance and the effectiveness of the working capital management define the overall effectiveness of functioning of an organization.
Financial risk management
The development of any business strategy and its successful implementation heavily rely on the financial risk management, which is another component of corporate finance. In the contemporary business environment, the development of a reliable business strategy and strategic planning is impossible without risk assessment. At the same time, the assessment of actual risks is insufficient if financial risks are not taken into consideration. The situation in financial markets changes fast and corporate finance and financial analysis conducted in terms of corporate finance allows companies assessing the existing and potential financial risks, which can affect the organizational performance.
In this respect, it is important to lay emphasis on the fact that financial risks can emerge spontaneously and provoke financial crisis. On the other hand, some financial risks are predictable and determined by objective factors. At this point, it is possible to refer to the oil price changes that have occurred within several years. In actuality, oil is a scarce resource that allows companies and countries selling oil to raise prices beyond an exorbitant level. In such a situation, oil prices have reached the level of USD 150 per barrel. However, the world economy has proved to be unprepared to such a high oil price and the exorbitant oil price has become one of the major causes of financial crisis in the US and affected other countries of the world. At the same time, the rise of the oil price was speculative because companies selling oil attempted to maximize their profits and through the rise of the oil price they attempted to maximize their corporate value. The actual effect of the exorbitant rise of the oil price was negative and affected both sellers and buyers of oil that proved that corporate finance of companies selling was unwise and ineffective. As the matter of fact, the rise of the oil price was unaffordable for buyers. In such a situation, the sales of oil have dropped consistently that led to substantial financial losses of sellers. In such a way, both buyers and sellers of oil have suffered substantial financial losses. At the same time, the financial crisis provoked by the fluctuation of oil prices was the result of the unwise and ineffective corporate finance of companies selling oil.custom term paper
On the other hand, the crisis reveals the full extent to which the adequate financial risk management is important for the successful implementation of business strategies and business development (Welch and Kainen. 1984). Obviously, if companies assessed financial risks adequately, they would not attempt to maximize their revenues and corporate value through the maximization of the oil price. This crisis proved that corporate finance and financial risk management as an integral part of corporate finance are crucial in the contemporary business environment.
Thus, taking into account all above mentioned, it is important to lay emphasis on the fact that corporate finance comprises an integral part of the business development and functioning of organizations is impossible without the development of reliable corporate finance and finance management. In this regard, the economic problems and recent financial crises reveal the importance and impact of corporate finance on the marketing performance of companies as well as national and international economy at large. The depth of the financial crisis depends on the effectiveness of corporate finance because numerous errors in corporate finance policies may lead to ruin of companies and to a profound economic recession. At the same time, corporate finance influence business strategy, human resource management and other issues related to functioning of modern organizations.
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