Finance is the science of money management, and the allocation of assets and liabilities over time. A key concept in finance is the time value of money, which is the idea that a unit of currency today is worth more than the same unit of currency tomorrow.
Finance aims to price assets based on their risk, and expected rate of return. Here we will consider three different sub categories of finance: public finance, corporate finance and personal finance.
Public finance is a branch of economics which considers how government manages revenue, primarily received through taxation, and expenditure, and works to ensure economic stability in the country of region governed.
Corporate finance deals with how companies acquire the funds they need for the operation of their businesses.
Keeping in mind that the goal of management in a company is to maximize value to the shareholders, corporate finance considers the tools available to management. This involves capital budgeting, which deals with the section of profitable projects, and capital structure decisions, regarding the financing of the projects with debt or equity capital.
Debt financing involves raising money by selling bonds, bills or notes to investors. In return for their money the investor becomes a creditor and receives a promise that principle and interest on the debt will be repaid.
Equity financing involves issuing shares, representing partial ownerships in the firm. The values of these shared will fluctuate in line with the overall value of the firm. We will explore concepts of stock market investing in the section below on personal finance.
Corporate finance also involves short-term management of the company’s current assets and current liabilities; such as cash, inventories, and short-term borrowing and lending. You can find a more detailed discussion about many of these terms in the Accounting section.
Financial management in many ways overlaps with accounting; however, financial accounting is concerned with the reporting of past financial information, while financial management is more concerned with the allocation of resources to maximize shareholder value.
Personal finance refers to the financial decisions and management issues of individuals or families. This involves saving, budgeting, and investing.
Taxation, retirement objectives and estate planning are all issues that must be considered.
Planning is essential for effectively handling personal finances. Accurately assessing one’s current financial situation, setting realistic goals, creating a suitable plan, executing the plan, monitoring progress and making adjustments as necessary are all essential steps in the planning of one’s personal finances.
Many concepts of personal finance are included in investing.