What is Finance and other related to finance PDF

Preview

Summary

What is Finance and other related to finance, meaning and description. Related to Financial Management....

Description

What is Finance? -

Finance is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting. There are three main types of finance: (1) personal, (2) corporate, and (3) public/government.

What Is Finance? Finance is a term for matters regarding the management, creation, and study of money and investments. Finance can be broadly divided into three categories:   

Public finance Corporate finance Personal finance

There are many other specific categories, such as behavioral finance, which seeks to identify the cognitive (e.g., emotional, social, and psychological) reasons behind financial decisions.

KEY TAKEAWAYS  Finance is a term broadly describing the study and system of money, investments, and other financial instruments.  Finance can be divided broadly into three distinct categories: public finance, corporate finance, and personal finance.  More recent subcategories of finance include social finance and behavioral finance.  The history of finance and financial activities dates back to the dawn of civilization. Banks and interest-bearing loans existed as early as 3000 BC. Coins were being circulated as early as 1000 BC.  While it has roots in scientific fields, such as statistics, economics, and mathematics, finance also includes non-scientific elements that liken it to an art.

Understanding Finance "Finance" is typically broken down into three broad categories: Public finance includes tax systems, government expenditures, budget procedures, stabilization policy and instruments, debt issues, and other government concerns. Corporate finance involves managing assets, liabilities, revenues, and debts for a business. Personal finance defines all financial decisions and activities of an individual or household, including budgeting, insurance, mortgage planning, savings, and retirement planning.

What Does Finance Mean? Finance is a broad term that describes activities associated with banking, leverage or debt, credit, capital markets, funds, and investments. Basically, finance represents the getting, the spending, and the management of money. Finance also encompasses the oversight, creation, and study of all the elements that make up financial systems and financial services.

What Are the Basic Areas of Finance? Finance is generally divided into these three basic areas: Public finance, which includes tax, spending, budgeting, and debt issuance policies that affect how a government pays for the services it provides to the public Corporate finance, which refers to the financial activities related to running a company or business, usually with a division or department set up to oversee those financial activities. Personal finance, which involves money matters for individuals and their families, including budgeting, strategizing, saving and investing, purchasing financial products, and safeguarding assets. Banking is also considered a component of personal finance.

The Bottom Line Finance is a broad term that describes a variety of activities. But basically, they all boil down to the practice of managing money—getting, spending, and everything in between, from borrowing to investing. Along with activities, finance also refers to the tools and instruments people use in relation to money, and the systems and institutions through which activities occur.

What Is Financing? Financing is the process of providing funds for business activities, making purchases, or investing. Financial institutions, such as banks, are in the business of providing capital to businesses, consumers, and investors to help them achieve their goals. The use of financing is vital in any economic system, as it allows companies to purchase products out of their immediate reach. Put differently, financing is a way to leverage the time value of money (TVM) to put future expected money flows to use for projects started today. Financing also takes advantage of the fact that some individuals in an economy will have a surplus of money that they wish to put to work to generate returns, while others demand money to undertake investment (also with the hope of generating returns), creating a market for money.

KEY TAKEAWAYS  Financing is the process of funding business activities, making purchases, or investments.  There are two types of financing: equity financing and debt financing.  The main advantage of equity financing is that there is no obligation to repay the money acquired through it.  Equity financing places no additional financial burden on the company, though the downside is quite large.  Debt financing tends to be cheaper and comes with tax breaks. However, large debt burdens can lead to default and credit risk.  The weighted average cost of capital (WACC) gives a clear picture of a firm's total cost of financing.

Understanding Financing There are two main types of financing available for companies: debt financing and equity financing. Debt is a loan that must be paid back often with interest, but it is typically cheaper than raising capital because of tax deduction considerations. Equity does not need to be paid back, but it relinquishes ownership stakes to the shareholder. Both debt and equity have their advantages and disadvantages. Most companies use a combination of both to finance operations.

MANAGEMENT Management is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively. Management’s primary function is to get people to work together for the attainment of an organization’s goals and objectives. Management is the coordination and administration of tasks to achieve a goal. Management is a process of planning, decision making, organizing, leading, motivation and controlling the human resources, financial, physical, and information resources of an organization to reach its goals efficiently and effectively. FINANCIAL MANAGEMENT Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. Financial Management is a vital activity in any

organization. It is the process of planning, organizing, controlling and monitoring financial resources with a view to achieve organizational goals and objectives. It is an ideal practice for controlling the financial activities of an organization such as procurement of funds, utilization of funds, accounting, payments, risk assessment and every other thing related to money.

In other terms, Financial Management is the application of general principles of management to the financial possessions of an enterprise. Proper management of an organization’s finance provides quality fuel and regular service to ensure efficient functioning. If finances are not properly dealt with an organization will face barriers that may have severe repercussions on its growth and development.

3 TYPES OF BUSINESS The three major types of businesses (as to product offered) are: 1. Service Business A service type business provides intangible products (products with no physical form). Service type firms offer skills, labor, expertise, and other similar work in return for professional or talent fees. Examples of service businesses are:  Business services, such as accounting, advisory, taxation, advertising, engineering, legal, research agencies, computer programming, etc.  Personal services, such as laundry, beauty salon, photography  Automotive repairs, car rental, car wash, parking spaces  Fitness facilities, amusement parks, bowling centers, golf courses, theatres  Hospitals and clinics, schools, museums, banks  Hotel and lodging, and more. 2. Merchandising Business This type of business buys products at wholesale price and sells the same at retail price. They are known as "buy and sell" or "reseller" businesses. They make profit by selling their goods at prices higher than their purchase costs. A merchandising business buys a product and sells it without changing its form. Examples include all distribution and retail stores such as: department store, grocery, hardware, clothes and accessories shop, consumer electronics, home furniture, appliance stores, drug stores, etc. 3. Manufacturing Business Unlike a merchandising business, a manufacturing business buys products with the intention of using them as raw materials to make a new product. Thus, there is transformation of the products purchased. A manufacturing business combines raw materials, labor, and overhead costs in its production process. The goods produced are then be sold to customers. Examples include:  Food processing, such as producing canned meat, frozen goods, dairy products, bottled drinks, also bakeries and oil mills  Fabric mills and textile production from cotton, wool, polyester; and also clothing factories that use textile as raw material  Wood and metal works, such as in building cabinets, tables, chairs  Oil refineries, chemical labs, plastic and rubber production  Ship builders, aircraft manufacturers, car makers  and many other producers and factories Many companies engage in more than one type of business, typically segregated through different departments or divisions. Take for example a tech company that produces phones (manufacturing), sells them through their distribution centers (merchandising), and provides repairs and maintenance (service). A

restaurant combines ingredients in making a meal (manufacturing), sells a cold bottle of beer (merchandising), and provides a dining venue (service)....