Information AboutFinancing |
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Finance is a field that studies and addresses the ways in which individuals, Businesses , and organizations raise, allocate, and use monetary Resources over time, taking into account the Risks entailed in their projects. The term '''finance''' may thus incorporate any of the following:
The activity of finance is the application of a set of techniques that individuals and organizations (entities) use to manage their money, particularly the differences between income and expenditure and the risks of their investments. An entity whose income exceeds its expenditure can lend or invest the excess income. On the other hand, an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims, decreasing its expenses, or increasing its income. The lender can find a borrower, a financial intermediary, such as a Bank or buy notes or bonds in the Bond Market . The lender receives interest, the borrower pays a higher interest than the lender receives, and the financial intermediary pockets the difference. A bank aggregates the activities of many borrowers and lenders. A bank accepts deposits from lenders, on which it pays the interest. The bank then lends these deposits to borrowers. Banks allow borrowers and lenders, of different sizes, to coordinate their activity. Banks are thus compensators of money flows in space. A specific example of corporate finance is the sale of stock by a company to institutional investors like investment banks, who in turn generally sell it to the public. The stock gives whoever owns it part ownership in that company. If you buy one share of XYZ Inc, and they have 100 shares outstanding (held by investors), you are 1/100 owner of that company. Of course, in return for the stock, the company receives cash, which it uses to expand its business in a process called "equity financing". Equity financing mixed with the sale of bonds (or any other debt financing) is called the company's capital structure. Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance), etc., as well as by a wide variety of organizations including schools and non-profit organizations. In general, the goals of each of the above activities are achieved through the use of appropriate financial instruments, with consideration to their institutional setting. Finance is one of the most important aspects of business management. Without proper financial planning a new enterprise is unlikely to be successful. Managing money (a liquid asset) is essential to ensure a secure future, both for the individual and an organization. PERSONAL FINANCE See Also: Personal finance Questions in personal finance revolve around
Personal financial decisions may involve paying for education, financing Durable Goods such as Real Estate and cars, buying Insurance , e.g. health and property insurance, investing and saving for Retirement . Personal financial decisions may also involve paying for a loan. BUSINESS FINANCE See Also: Corporate finance In the case of a company, managerial or corporate finance is the task of providing the funds for the corporation's activities. For Small Business , this is referred to as SME Finance . It generally involves balancing risk and profitability. Long term funds would be provided by Ownership Equity and long-term Credit , often in the form of Bond s. These decisions lead to the company's Capital Structure . Short-term funding or Working Capital is mostly provided by banks extending a line of credit. On the bond market, borrowers package their debt in the form of bonds. The borrower receives the money that it borrows by selling the bond, which includes a promise to repay the value of the bond with interest. The purchaser of a bond can resell it so that the actual recipient of the interest payments can change over time. Bonds allow lenders to recoup the value of their loan by simply selling the bond. Another business decision concerning finance is investment, or Fund Management . An investment is an acquisition of an Asset in the hope that it will maintain or increase its value. In Investment Management -- in choosing a Portfolio -- one has to decide ''what'', ''how much'' and ''when'' to invest. In doing so, one needs to...
Financial management is duplicate with the financial function of the Accounting Profession . However, Financial Accounting is more concerned with the reporting of historical financial information, while the financial decision is directed toward the future of the firm. Capital Capital is the money which gives the business the power to buy goods to be used in the production of other goods or the offering of a service. Sources of capital =Capital market
=Money market
Borrowed capital This is capital which the business borrows from institutions or people, and includes debentures:
Own capital This is capital that owners of a business (shareholders and partners, for example) provide:
Differences between shares and debentures
Fixed capital This is money which is used to purchase assets that will remain permanently in the business and help it to make a profit. =Factors determining fixed capital requirements
Working capital This is money which is used to buy stock, pay expenses and finance credit. =Factors determining working capital requirements
The desirability of budgeting Capital budget This concerns fixed asset requirements for the next five years and how these will be financed. Cash budget Working capital requirements of a business should be monitored at all times to ensure that there are sufficient funds available to meet short-term expenses. Management of current assets Credit policy Credit gives the customer the opportunity to buy goods and services, and pay for them at a later date. =Advantages of credit trade
=Disadvantages of credit trade
=Forms of credit
=Factors which influence credit conditions
=Credit collection ==Overdue accounts
==Effective credit control
==Sources of information on creditworthiness
==Duties of the credit department
Stock =Purpose of stock control
=Stockpiling This refers to the purchase of stock at the right time, at the right price and in the right quantities. ==Advantages
==Disadvantages
=Influence of stock management on rate of return
=Rate of stock turnover This refers to the number of times per year that the average level of stock is sold. It may be worked out by dividing the cost price of goods sold by the cost price of the average stock level. =Determining optimum stock levels
Cash =Reasons for keeping cash
=Advantages of sufficient cash
Management of fixed assets Depreciation Depreciation is the decrease in the value of an asset due to wear and tear or obsolescence. It is calculated yearly to ensure realistic book values for assets. Insurance Insurance is the undertaking of one party to indemnify another, in exchange for a premium, against a certain eventuality. =Uninsurable risks
=Requirements of an insurance contract
SHARED SERVICES There is currently a move towards converging and consolidating Finance provisions into Shared Services within an organization. Rather than an organization having a number of separate Finance departments performing the same tasks from different locations a more centralized version can be created. FINANCE OF STATES See Also: Public finance Country, state, county, city or municipality finance is called public finance. It is concerned with
FINANCIAL ECONOMICS See Also: Financial economics Financial economics is the branch of Economics studying the interrelation of financial Variables , such as Price s, Interest Rate s and shares, as opposed to those concerning the real economy. Financial economics concentrates on influences of Real economic variables on financial ones, in contrast to pure finance. It studies:
FINANCIAL MATHEMATICS See Also: Financial mathematics Financial mathematics is the main branch of applied mathematics concerned with the financial markets. Financial mathematics is the study of financial data with the tools of Mathematics , mainly Statistics . Such data can be movements of securities— Stock s and Bond s etc.—and their relations. Another large subfield is Insurance Mathematics . EXPERIMENTAL FINANCE See Also: Experimental finance Experimental Finance aims to establish different market settings and environments to observe experimentally and analyze agents' behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanisms, and returns processes. Researchers in experimental finance can study to what extent existing financial economics theory makes valid predictions, and attempt to discover new principles on which such theory can be extended. Research may proceed by conducting trading simulations or by establishing and studying the behaviour of people in artificial competitive market-like settings. RELATED PROFESSIONAL QUALIFICATIONS There are several related Professional Qualification s in finance, that can lead to the field:
SEE ALSO : Main lists: List Of Basic Finance Topics and List Of Finance Topics ''
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