The company issuer and company finance are interlinked, but the operational part where they work is entirely different. Company issuers are key players in the capital market. Around 70% of listed companies raise funds through equity or bond financing. On the other hand, company finance is not limited to only financing activities; it refers to tasks such as risk control, investment decisions, and profit distribution, which are funded by both money and credit.
Company Issuer
The company issuer is mainly controlled by enterprises and organizations that raise funds through the capital market by issuing financial instruments such as stocks and bonds. In 2023, more than 1,800 companies were listed in the A-share market, and their total financing amount reached around RMB 3.4 trillion, according to statistics from the Chinese securities market. The money is then used towards the firm’s expansion, mergers and acquisitions (M&A), research and development (R&D), etc. Positive market sentiment is a success factor, but more important is the health of the issuing company.
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Equity financing: A system by which companies increase their capital by issuing new shares. The total amount raised by IPO financing in the A-share market of China for 2022 was RMB 546 billion. The key benefit of equity financing is that it does not increase the company’s debt but rather dilutes existing ownership. In 2018, Meituan completed its IPO with $4.2 billion in capital to grow its user base and enhance services technically.
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Debt financing: One of the frequent ways companies raise funds is by issuing bonds. By 2022, the total amount of corporate bonds in China reached RMB 15.3 trillion. Debt financing protects the rights of shareholders more than equity financing but at a cost called interest. The company issued $3 billion in overseas bonds last year to fund its global expansion and research and development efforts.
Company Finance
Company finance goes far beyond the issuance of business finance, as it deals with most aspects related to cash flow and capital operations required by a company for financial health. Over the years, these averages have been fairly stable, meaning that 60/40 is a good approximation of what global companies look like in terms of capital structure on average as of 2021. The art of company finance is finding the ratio that achieves the right balance within this trade-off for where your capital structure optimization sweet spot lies.
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Capital structure decisions: For example, Apple, with a modest amount of debt alongside its substantial stock buybacks, has achieved balance between equity and the rest of its assets. More than $100 billion of that debt financing funded stock repurchasing and paying dividends to shareholders in 2018, which contributed to driving its share price up by more than 50%.
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Companies finance: In addition to raising funds by issuing external securities, the company can also raise internal retained profits and bank loans. This has been a crucial cash flow component for companies like Alibaba Group, which has retained around $50 billion in funds since its 2014 listing. This reduces the business’s reliance on external funding and increases capital efficiency.
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Finance: It is responsible for raising money, planning, and controlling the company’s investments in projects like product development or other ventures. The International Association for Financial Management — an organization founded in 1958 dedicated to helping individuals and companies structure global financial strategies on a multinational level — states that the average return on investment (ROI) worldwide for corporations is around 9% per year. Google invests over $26 billion a year in research and development in AI and cloud computing, which enables them to improve their products and expand their market as they grow.
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Risk management: Company finance must actively manage various financial risks, including market volatility and exchange rate risk. For example, Toyota, being a multinational company, manages its currency exposure by entering into future and forward contracts to reduce the impact of changes in certain currencies. This strategy saved Toyota about 3 billion yen (approx. £21m) in losses in 2022.
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Dividend and shareholder value management: The company finance department is responsible for formulating rational dividend policies to attract investors and maintain a good relationship with shareholders. Microsoft, Has returned over $16 billion to shareholders every year for the past five years, including 2011, while continuing to trade at new multi-year highs. Such a dividend policy supports the regular growth of its capital and maximizes shareholder value.
Relationship and Differences Between the Two
The former is focused on the core task of issuing financial instruments when company issuers raise funds from the capital market. At the time of issuing, companies create securities that meet market demand and are required to comply with all applicable regulations. In 2021, Ping An of China raised RMB 12 billion through bond issuance to optimize its capital structure.
In contrast, corporate finance is a broader sector that includes not only fundraising but also fund management, investment decisions, and risk control. Not only does Apple’s finance team raise funds in connection with bond issues, but it also manages tens of billions of U.S. dollars in cash reserves and ensures the company’s financial health on a global basis.
The main differences between the two are:
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In the case of public securities issuance, company issuers raise funds from the capital market. Their role is short-term, dealing with fundraising events.
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Corporate finance handles the overall financing of an organization, incorporating long-term investment decisions, risk analysis, and capital allocation. The goal is to support the stability and potential growth of a business over many years.
