Meaning Of Finance

According to the dictionary meaning, Finance (finance) is the management of large amounts of money, especially by governments or large companies. When used as a verb, it can mean providing funds for a person or organization. The word is used to describe each type of money management.

Definitions Of Finance

Finance is closely related to money, as it is replaced as an intermediary rather than a swap. Finance is the life of all activities; economic, social and administrative. Finance flows to the public as taxes, to savings for banking and financial institutions, to capital, or to bonds or bonds. It is then used for various development and non-development activities through the government and other institutions and is returned to the public in various forms as income. Below are some generally understood definitions of Finance:

  • Economics: a branch of economics related to resource allocation and resource management, acquisition and investment. Deals with issues related to money and markets.
  • Business: Finance is to raise money through the issuance and sale of debt and / or equity.
  • Experts: Finance, examines how people allocate their assets over time under conditions of certainty and uncertainty. Finance aims to price assets based on risk level and expected rate of return.
  • Scientific View: Finance is the science that explains the management, creation and operation of money, banking, credit, investments, assets and liabilities.
  • Function view: the finance function covers various functions, activities and processes. Financing functions are the compass of budget functions, risk and return management, cash flow management, cash management, financial management, risk and governance, and many more associated functions.

Features Of Finance

Channeling funds: it is well known that the financial system is a critical element in all economies. The financial sector and financial markets perform the function of channeling the funds of people with extra funds to people who do not have investable funds.

Acquisition, allocation and use of funds: relates to the acquisition, allocation and use of funds as a function of Finance. A business should make sure that enough resources are available from the right source at the right time at the right cost. It must decide on the form of raising funds, whether through the issuance of securities or through lending from the bank. Once the funds are acquired, the funds need to be allocated to various projects and services, and finally the purpose of the business is to make a profit, which depends on how effectively and efficiently the funds allocated are used. Proper use of funds is based on sound investment decisions, appropriate control and asset management policies, and effective management of working capital.

Maximizing shareholder earnings: the purpose of any business is to maximize and create the wealth of investors measured by the price of the company's share. The price of any company's share is a function of its current and expected future earnings. Finance helps define policy and ways to maximize earnings.

Financial management: maximizing the economic well-being of its owners is the financial goal that firms adopt. Therefore, the goals of financing are to provide businesses with adequate and regular resources and to provide capital suppliers with a fair rate of return. Finance helps by ensuring the effective use of capital and available resources according to the principles of profitability, liquidity and safety. It provides a precise system for internal investment, financing and internal controls. And finally, the company tries to minimize the cost of capital by developing a robust and economical combination of its securities.

Finance Categories

Finance can be divided into three distinct subcategories: Public Finance, Corporate Finance, and personal finance. There are many subcategories in all three of them.

Public Finance: Public Finance is a part of economics education. Public finance is the study of the financial activities of governments and public authorities. Public finance means that finance can be used with sovereign states and sub-national organizations (such as states / provinces) and with related public institutions (e.g., it defines its relationship with municipal economic organizations or institutions. Explain and analyze government spending and the techniques used by governments to fund these spending. It concerns the definition of the necessary expenditures of a public organization and the sources of income and the budgeting process. Public Finance analysis helps us understand why some services are provided by the government and why governments rely on certain types of taxes.

Corporate Finance: Corporate Finance is the provision of funds to fund and manage the activities of a company. Corporate Finance aims to examine the financing of resources from a variety of sources, such as the market, the general public, or various financial institutions. In the process, Corporate Finance aims to balance risk and profitability while trying to maximize assets and stock value. The importance of corporate finance is emphasized by its economic and social importance in terms of increasing public responsibility as the organization grows and the broad distribution of corporate property in the process of separating ownership from management.

Personal Finance: Personal Finance refers to the financial decisions that an individual must plan for their future. These decisions include decisions on the acquisition of monetary resources, planning the implementation of income, budgeting, deciding on the amount and mode of saving, and spending money resources over time. In this process, it is expected to take into account the various financial risks and future life events that may affect current income levels or projected revenues and must plan for them.

Categories Of Finance Classification

1-Direct and indirect finance

Finance can be of two kinds:

Direct finance: the borrower borrows directly from the financial market by selling securities (also called financial instruments) that the borrower claims over future income / assets or reserves.

Indirect finance: in this case, the transfer of money from savers to borrowers is carried out through financial intermediaries (for example, commercial banks).

2-short-term and Long-Term Finance

It takes money to build all kinds of businesses. A business owner may try to persuade investors to invest in their business, and that money can be borrowed for the short term or long term.

Long-term finance: long-term financing is generally used in the field of land, building, machinery and plant, etc. It is used for investments in fixed assets and is not repaid in the short term.

Short-term finance: short-term finance is used for investments in working capital. It is used to meet the short-term needs of the business. In the case of a cash loan account, it can be repaid in the short term or on request. Short-term loans can usually be paid for between one and three years.

3-Financial Resources

Sources of funds can generally be divided into Owned Capital and borrowed funds.

Ownership capital: ownership capital is money brought by the businessman himself and expressed as capital.

Capital obtained by borrowing: this capital is a bank, a financial institution, etc. It is money issued by external entities, usually in the form of loans.