Finance is the branch of commerce that deals with the management of funds and investments for the purpose of raising and lending money to individuals, companies, and institutions. The term finance has various other meanings as well, including business, which usually means dealing in commerce involving financial matters. Business itself typically refers to the process of earning a profit, while the word company means relating to, containing, or connected with business. Finance can be split into different major areas in contemporary society. These include business assets, business liabilities, personal assets, business enterprises, financial markets, government finance, private finance, and governmental finance.
Finance is a branch of commerce that deals with the movement of funds over time and in accordance with the prices of commodities, currencies, stocks, or other financial instruments. There are three major areas of contemporary finance. They are business finances, personal finances, and financial markets. Within these areas there are many subtopics such as insurance, banking, asset management, venture capital, international finance, and insurance policy. All of these areas interact to create and determine the conditions that must be present in order for money to be made, given, or traded.
Business finance is basically the area of creating new financial opportunities for new businesses and for expanding existing ones. The principles of this form of finance are that financial wealth increases faster than general economic growth. In order for any business to make profits, its investments must be able to generate returns that are high enough to pay off both the costs of the capital assets used to finance them and the profits earned through their production.
Another branch of modern finance is financial accounting. Financial accounting uses mathematically controlled data to represent the financial activities of an enterprise. Financial accounting uses three major forms including the discrete accounting system, the integrated enterprise resource planning (ERP) system, and the financial reporting system. Financial accounting uses the same tools that traditional accounting uses, but instead relies on computer generated systems to capture and record the data, and then to create reports that can be used by managers, investors, tax authorities, and other interested parties.
Economics is the branch of business finance that studies how people, firms, and institutions make decisions. The focus of economics is how the decisions are made. In essence, this includes the methods that are used to analyze the information that is being collected in the effort to arrive at the decisions that are being made. In short, economics analyze how individuals and organizations make choices within the economics of the financial markets.
Venture capital is another important branch of finance. Venture capital funds are used to finance specific start up ventures, new technologies, and/or products that can change the world. Venture capitalists typically have an interest in either starting a new company or in helping to start an existing firm that is facing financial difficulties. Both of these endeavors require more capital than normal loan arrangements would require. Venture capitalists use a variety of strategies to raise capital for these investments.
Finally, the final major type of finance that affects the financial markets is insurance. Insurance companies provide a variety of services for a variety of clients. A common service provided by insurance companies is risk management. In the investment context, risk management focuses on how to manage the effects of risks that are inherent in the financial markets.
As you can see, there are a number of different areas that fall under the broader categories of corporate finance. While accounting and venture capital are at the heart of many of the activities involved in corporate finance, there are many other important areas of focus. Keep reading to find out what these other areas of focus are. The more you learn about the financial management fields, the more prepared you will be to handle whatever position you enter.