Corporate Finance Financial Terms & Definitions

25 terms in this topic

Corporate finance encompasses the financial activities and strategies that corporations use to raise capital, make investments, and manage their financial resources. It includes key concepts such as capital budgeting, cost of capital, dividend policy, and mergers and acquisitions. The goal is to optimize the firm’s financial performance and long-term value.

L

Leverage

Leverage is the strategic use of borrowed capital (debt) to increase the potential return on an investment. In corporate finance,…

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P

Payback period

The payback period is a fundamental capital budgeting tool used to evaluate the profitability and risk of a potential investment…

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T

Terminal value

Terminal value is a crucial concept in corporate finance that represents the estimated value of a business or investment beyond…

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Internal rate of return (IRR) The Internal Rate of Return (IRR) is a powerful financial metric used to evaluate the profitability of potential… Leverage Leverage is the strategic use of borrowed capital (debt) to increase the potential return on an investment. In… Modigliani-Miller theorem The Modigliani-Miller theorem is a foundational theory in corporate finance that, under a specific set of ideal market… Net present value (NPV) Net Present Value (NPV) is a core concept in corporate finance used to evaluate the profitability of an… Payback period The payback period is a fundamental capital budgeting tool used to evaluate the profitability and risk of a… Pecking order theory The pecking order theory is a corporate finance concept that explains how companies prioritize their sources of financing.… Pro forma financial statements Pro forma financial statements are forward-looking financial reports that project a company’s future financial performance based on hypothetical… Profitability index The profitability index (PI) is a financial metric used in capital budgeting to evaluate the attractiveness of an… Share repurchase A share repurchase, also known as a stock buyback, is a corporate action in which a company buys… Terminal value Terminal value is a crucial concept in corporate finance that represents the estimated value of a business or… Trade-off theory The trade-off theory is a core concept in corporate finance that explains how companies decide on their mix… Weighted average cost of capital (WACC) The Weighted Average Cost of Capital (WACC) is a financial metric that represents the average rate of return…