Finance is a broad term encompassing a variety of things about the study, development, management, allocation, and allocation of funds. It is concerned with the movement of funds from its source to its final destination. Finance is a part of business activity and plays an important role in planning, organizing, reducing risk, minimizing complexity, ensuring security, and making choices. It includes various other areas such as credit, banking, investing, insurance, real estate, and mortgage.
Finance is important to all parts of the economy since it creates demand and determines productivity. The key role that finance plays in any organization is to determine the time value of money. Finance defines the difference between what it costs an organization to borrow and what it will cost it to invest in the same thing. Finance affects both short-term and long-term decisions.
For any company, the most important aspect of its financial activities is budgeting. A properly administered budget assists in providing resources for economic growth, while preventing over-indebtedness and under-capitalization. Proper budgeting also allows an organization to assess risks and use prudently its financial instruments. Finance therefore encompasses many areas of business finance including: general budgeting, balance sheet analysis, financing, investments, mergers and acquisitions, restructurings, dispositions, cash flow forecasts, market analysis, and advice on how to manage financial affairs.
As stated earlier, budgeting is the most important area of financial planning and administration. The ability to properly manage resources and ensure financial growth are essential for long-term viability of an organization. Some of the aspects of budgeting include: controlling spending, allocation of resources, and allocation of incomes.
Another vital aspect of business finance is savings and investment. A saving and investment account (S&A) is a crucial element of sound business finance since it represents the company’s wealth. The different financial models include risk aversion, individual savings, portfolio saving, endowment, mutual funds, and estate management.
Besides these, investing is the third aspect of business finance. An investor in a business can either invest in shares, equities, bonds, or proprietary instruments. Investing entails determining the intrinsic value of the assets that can be bought and sold at a later stage and making sure that the investors make their profits from the profits. The different types of investments include: primary investments, secondary investments, derivatives, and market investments.
The last but not the least is what is the difference between accounting and finance? Accounting is a process by which a company’s financial records are prepared for analysis and decision-making purposes. It mainly includes the recording of transactions, information that influences the recording of the financial statements, such as transactions that change due to statutory recording requirements, journal entry, balance sheet, income statement, and statement of cash flow. Finance on the other hand, is concerned with the decisions made about investment and lending activities. Accounting involves a systematic approach to the collection, interpretation, reporting, and preparation of financial statements in order to meet the objectives of the management of the enterprise.
Finance and accounting are closely related although the scope of each discipline is narrower than the other. With finance, one has to deal more with the budgeting aspect while with accounting you have to deal more with the information that affects the recording of transactions and the determination of the financial statement. The difference between these two subjects is actually very wide and it might be said to be the essence of the two disciplines. Both are concerned with how the funds are used to satisfy the objectives of the organization.