A Review On Valuation And Corporate Finance

Abstract

Valuation is an important concept within the realms of corporate finance decisions. The concept of valuation is pervasive within all the three broad classifications of corporate finance decisions which include capital budgeting decisions, capital structure decisions, and working capital management decisions. The discussion under this theme has been divided into three sub-sections with one sub-section each being devoted for examination of the relationship between each of the three broad classifications of corporate finance decisions and valuation. For this study a systematic review of the literature specific to the broad area of valuation, as it related to corporate finance, directly and indirectly, was conducted involving the period from early April to mid-October 2019. The researchers have theorized connections between various concepts related to capital structure, capital budgeting, and working capital management with the value of a firm. In the context of capital structure researchers have been trying to understand whether there is an optimal capital structure for an individual firm. Theories related to impact of debt, with or without imperfect conditions such as bankruptcy cost, agency cost, and tax shield, have been presented and criticized. The relation between firm valuation and capital budgeting decisions has been discussed, and various methods used for evaluating investment projects such as Net present value method, the internal rate of return, and Modified Internal Rate of Return, have been discussed. Lastly, researchers have found out that corporate finance manager regard working capital management to be vastly critical for their firms’ value, and have presented various theories in this connection.