What is Finance, it’s types and financial management
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What is Finance, it’s types and financial management

What is finance?

If you want to know what is Finance? Let me be honest with you; it is a complicated term that comprises activities like business, leverage, capital market, money market and investment. Simply put, it is a process of managing money and acquiring funds and deals with every aspect that makes a financial system, including banking, credit, liabilities, investment, creation, and study of money.

Since the majority of the finance concepts are derived from the micro and macro financing that emphasizes on principle concept of finance: Money value that states the value of money today is more significant than its value in the future. The article provides a comprehensive coverage to finance, finance managing, and types of finance.

Personal finance:

Personal finance, as the name indicates is the process of formulating strategies for an individual after analyzing his savings, earning potential, and time frame. The objective behind personal finance is to achieve any particular goal like protection against uncertain events of the future, preparing for retirement, saving for education, planning for retirement, or transferring wealth across generations.

In personal finance, a person can invest in insurance, mortgage, credit cards, and various other types of investments in money and capital marketing to reap the most of the activities.

Public finance:

Are you fully aware of what is finance and personal finance? Then let’s head towards the other type ‘Public finance’  which deals or facilitates the smooth running of government including tax, spending, budgeting and insurance – all these activities determine how a government helps or provides services to the public. However, the government should come up with plans for tax-paying individuals and maintain a stable economy that can protect the assets or savings of all and sundry.

Typically, the steady funding is through the taxation. Bank borrowing, money from other countries and insurance companies also bring the regular flow of funds for the government. Apart from managing money, the government is also liable to support social and fiscal responsibilities.

Corporate finance:

Corporate finance encompasses all activities that contribute to smooth running of a corporation. Generally, a department with a purpose to oversee the financial operations likes sources of funds and channelization to improve the value of the company by improving company’s reputation. The goal of corporate finance is to maximize the asset value by balancing out opportunities and risk. Many big companies may decide to introduce additional funds by issuing a bond or stock offering.

Corporate finance mainly deals with capital budgeting, identification of source of funding, tax considerations, risk management, investment in stocks or acquisition in shares or other assets.

What is financial management?

Financial managing refers to the process of planning, organizing directing and managing money-related activities or in other words applying general management principle to financial resources of a company. Mainly the investment decisions are taken  In either capital market or money market with the one purpose to raise funds and dividend decisions a manager takes in terms of net profit that are further divided into:

Dividend for stakeholders: The rate of dividend should need to be decided.

Retained earnings: The retained profit needs to be finalized which is contingent upon expansion or diversification plan of the company.

What are the fundament objectives of Financial management?

You may have fully understood what is finance and now let’s move towards the fundamental objective of fund or financial management.

  • The prime reason is to ensure the streamlined flow of funds to the concern.
  • There is one essential purpose and that is Optimum funds utilization: the process by which we ensure the funds are utilized at maximum level with minimal cost.
  • To plan a sound and secure capital structure with an adequate composition of capital in order to maintain debt and equity capital.
  • We ensure safety on management i.e. the funds should be invested in a safe venture and a reasonable rate of return can be expected.

What are the seven prime functions of financial management

I hope you are clear with the question, “What is finance”. Now let’s move towards the fundamental functions of financial management.

Investment of funds

The finance manager has to allocate funds to profitable ventures, ensuring the safety on investment with a regular flow of income.

Disposal of surplus

The decision of net profit should be made by the finance manager in two possible ways: retained profit or dividend declaration, both has been explained above.

Financial controls

A finance manager is not just liable to plan organise the finance but has to control over finances. It can be done through various techniques like cost and profit control, financial forecasting and more.

Cash management

We know cash is needed for almost every business activity like wages and salaries, electricity and water bills, meeting current liabilities, stocks and more.

Estimation of capital requirement

A finance manager needs to estimate in accordance with capital requirement of the company. It depends upon expected costs and profits and all future programs and policies for concern.

Determination of capital composition

The capital structure needs to be decided wisely that involves short term and long term debt and equity analysis.

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