The field of corporate finance deals with the decisions of finance taken by corporations along with the analysis and the tools required for taking such decisions. The principle aim of corporate finance is enhancing the corporate value and at the same time reducing the financial risks of the company.The discipline of corporate finance can be split into the short term and the long term techniques of decisions. The investments of capital are the long term decisions relating to the projects and the methods required to finance them. On the other hand, the capital management for working is considered as a short term decision that deals with the short term current liabilities and asset balance.
Generally, the sources of finance will comprise of a mix of equity as well as debt. If a project is financed through debt, it results in causing a liability to the concerned company. Hence in such cases, the flow of cash has various implications regardless of the success of the project. The financing done by equity carries a lower risk regarding the commitments of the flow of cash, but the result of this is the dilution of the earnings and the ownership. The cost involved in equity finance is also higher in the case of debt finance. Hence, it is understood that the finance done through equity, offsets the reduction in the risk of cash flow. The management has to hence have a mix of both the options.