An Introduction to Business Finance
Finance is a broad term encompassing many things about the study, production, allocation and management of financial resources. In particular, it concerns the questions of why and who acquires the funds required for any activity, which is often termed capital in the business context-and how they make use of that capital. Finance can also include other related fields as financial engineering, financial economics and the discipline of banking.
Finance is important in all sorts of organisations. It helps to determine how the organisation can best use its capital to acquire new resources or to create new financial assets. It also provides information about the allocations of funds within an organisation. Finance is central to the activity of banks, building societies, mutual funds and other financial institutions. It thus covers a wide range of activities such as setting up, management and allocation of capital, maintenance of financial positions, risk management and determination of the value of shares or stocks.
The major components of finance are interest payments, secured and unsecured loans, purchases, sales and income from finance investments. All these things are related to the accumulation and management of funds. Finance decisions are made by deciding where, when and by what means the funds are to be used. Key decisions made in finance include setting up, management and allocation of financial assets, determining the value of different securities and issues, creating financial solutions to problems arising in the financial institutions and ensuring payments and returns to shareholders.
There are various types of services provided by finance. They include financial planning, capital budgeting, investment decision making, asset management, collection and disposition of funds and international finance. Finance is therefore a large discipline, which includes a wide variety of sub-disciplines. Some of them are accountancy, financial advising, insurance, banking, pension, insurance, financial planning, mortgage banking, real estate and corporate finance. The field of finance is constantly growing as new applications and needs for new products are created. In spite of this, all the financial services should be researched prior to being implemented.
One of the main functions of finance is creating financial products such as financial plans and proposals. Finance also decides on how the various financial activities will be conducted. Finance decides on whether to create financial products that require long-term investments, or short-term ones. Financial institutions create financial products for their customers, banks may also create them for customers, and investment banks may lend funds to businesses. Many forms of direct financing are created, such as loans, invoices, construction materials, purchase of equipment, settlement loans, etc.
The study of business finance is extremely important to the success of any type of venture. Those who have an overview of the broad field of finance will be able to make sound financial decisions on behalf of their customers. A basic understanding of the economic concepts is necessary in order to understand and evaluate the performance of any particular business in today’s economy. Anyone who is interested in furthering a career in business finance should consider a formal education.