Decisions on how to capitalize or finance an organization have been defined as including which funds are used to help an organization raise its resources needed for its usual operations. For most business ventures, an organization can obtain two primary sources of finance: equities and debts. Issuance of equity refers to selling shares to the public. Debt funding, however involves borrowing money usually in loan or bond forms. This will determine the capital structure, riskiness and the overall cost of capital. The capital structure must be balanced in order to increase financial performance and costs of capital.
4. Dividend Policy
Another key decision of corporate finance is the one concerning dividend policy. The firms must decide what percentage of their earnings should be given back to investors as a dividend and what percentage should be reinvested in the company. This really has a long way of affecting the stock prices and investors' perceptions. A well-formulated and clearly communicated dividend policy makes investors comfortable and confident, whereas an unclear policy results in uncertainty leading to reduced valuations for stocks.