Finance is a broad term covering many different things about the financial management, development, and implementation of loans and other financial investments. It involves the setting and managing of financial assets and liabilities as part of an organization’s operations. In addition, it includes the preparation and approval of budgets, the collection of payments from customers, and the allocation of resources. All of these activities are needed to ensure that the organization’s activities will be financed properly and projects will be completed on time.
This broad term is sometimes used in tandem with investment banking, which is a process by which organizations create and manage their financial investments. The two kinds of financial planning may sometimes overlap, especially when dealing with matters such as mergers and acquisitions, business refinancing, ownership issues, partnership investments, and issues concerning the separation of management and ownership in companies. Therefore, understanding both can be an essential part of a well-balanced finance strategy.
Finance has many different components. While much of this is based on the analysis of individual savings and investment plans, finance also includes aspects of investment management, budgeting, acquiring and distributing capital, risk management, and the utilization of financial resources. Within these components are three important subtopics: personal finance, corporate finance, and behavioral finance. Each subtopicate of finance includes its own set of unique characteristics and behaviors. Personal finance refers to how individuals invest their money. Corporate finance is the area related to the businesses that individuals own and operate.
Behavioral finance is often considered one of the most important aspects of personal finance. It refers to how people use their finance to set their personal limits, objectives, risks, and expectations. For example, some people may be risk averse, meaning they are cautious when spending or borrowing money. On the other hand, others are more aggressive in their use of corporate finance resources – using those funds to purchase risky ventures or expand existing businesses.
Corporate finance includes the areas related to corporate borrowing and financial activities. One subtopic of corporate finance is the aspect of debt financing. This includes debt for plant and equipment used in operations, acquired property, retained earnings, and other financial activities of the corporation. Other subtopics in corporate finance include the issue of issuing securities for future financial opportunities, taxation of corporate finance, and the reporting of company financial activities.
Public finance is an economic field that studies how public institutions such as cities, states, and the country as a whole provide goods and services to citizens. Public finance includes taxes people pay to support public institutions, and the way people utilize these institutions. Two main elements of public finance are the investment of tax dollars and the allocation of those funds to different public purposes. The scope of public finance is quite broad. It also includes aspects of environmental management, labor and employment, health care, public works, transportation, and consumer protection.
Private finance is another branch of study that examines the behavior of individual investors and firms in the financial markets. Private finance is intimately connected with investment and saving practices of individuals. Private finance also includes aspects of the business world, including management and leadership, asset allocation, mergers and acquisitions, estate planning, philanthropy, and financial research and counseling. Another important element of private finance is transactional funding, which uses cash assets or credit accounts to finance short-term lending activities.
Within each of the broad term categories, there are subtopics that deal with specific business activities. Banking is a subtopic of banking, which refers to the activity of managing bank loans and other financial obligations. The banking industry includes commercial banks, savings and loans, and mortgage banking. Public finance generally deals with the policies that governments implement in order to support the financing of programs and projects, including the collection of interest on public debt and other capital investments.