Finance is basically the act of channeling funds from investors and savers to entities who need it most. While most people are familiar with finance as it pertains to creating a retirement account, investing in mutual funds, or borrowing money for weddings, vacations, and debt consolidation, there are actually many other uses for the financial knowledge that a degree in finance can provide. Even if you are an entrepreneur who wants to take advantage of the profit potential of various ventures, a basic understanding of the role of finance in such undertakings is helpful.
Finance is an important part of any system of creating wealth. Without capital, production cannot occur and money will not be distributed to those who need it most. Investors and savers have money available that can make dividends or interest payments when put to effective use. All socioeconomic classes understand how vital finance is to their own well-being, and most people can readily name several instances where they have utilized their money through the purchase of goods and services or the building of homes, businesses, and other establishments.
Poor management of funds can have dire consequences. Property can be destroyed, capital can be lost, and the economy can crumble. Poor investment decisions by individuals and groups can also have a significant impact on the overall economic health of an entire nation. It is for these reasons that the study of finance helps us understand the importance of properly managing our monetary resources.
The term “corporation” itself brings to mind images of colossal buildings and wide-sprawling office spaces. While these associations are certainly large and impressive, the majority of us will probably never have any control over a corporation’s day to day activities. A major portion of any company’s capital funds are usually dedicated to paying off mortgages and other secured debts, guaranteeing long-term repayment. While the goal of corporate finance may be to secure more funding for future operating expenses, a company’s actual bottom line will almost certainly always depend upon the amount of cash on hand.
In contrast, the financial activity that financing businesses is referred to as financing. This includes both direct and indirect contributions made by organizations towards their operations and growth. These various types of capital include money invested in equipment, land, and assets, as well as other forms of debt. In addition to these two types of capital, financing also encompasses bank borrowing and other forms of financial transactions such as leasing.
In conclusion, we have looked at three major areas of financial activity. These include general corporate finance, asset and property management, and the financing of fixed assets, partnerships, and acquisitions. The large company may engage in one or more of these various financial activities. Regardless of whether a business uses internal funds or external funds, it must make sure that these activities are managed properly.