Financing is a broad term used in the financial world that generally refers to things concerning the study, development, management, and distribution of loans and other financial investments. Finance can be defined as the science of funds management, the application of principles of economic theory, and the use of financial tools to achieve certain objectives. Finance is one of the most important categories of management of the economic system. Its ability to affect economic policy has created enormous influence on the level of economic activity, government finance, and investment choices.
The discipline of finance is complex and influences many aspects of the business environment. It includes tax policies, investment research, corporate finance, estate planning, international trade, financial institutions, and public health. All these facets of finance impact the decisions organizations make and the manner in which they operate. Without proper financing methods, businesses would find it difficult to obtain needed capital and meet their objectives.
The basic function of finance is to provide a platform for banking and the other related financial activities. The various aspects of finance include: credit risks, interest rates, risk retention, capital budgeting, financial markets, portfolio management, and monetary systems. Finance therefore consists of many discrete components that are interrelated and which interact with one another. The interdependence among these various components make it more difficult to summarize, although we can make some simplifying assumptions. We shall therefore take our cue from the key takeaways outlined below.
Accounting is a part of finance. Finance refers to the science of making economic activity more efficient by improving information systems and the decision-making process. Accounting is one part of finance that influences organizations’ decision-making and management decisions. There are two major parts to accounting: accounting theory and practice and accounting mathematics. The scope and techniques of accounting theory depend upon the objectives of the organization and the financial markets. On the other hand, accounting mathematics is concerned with the estimation of results and is used in implementing management decisions.
Another component of finance is the corporate finance. Corporate finance refers to the business investments made by the public or by corporate bodies for the growth of the business. A large number of complex problems emerge when thinking about corporate finance. Examples of such problems are derivatives, floating and fixed income securities, corporate bonds, mergers and acquisitions, commercial real estate, employee benefits, investor financing, restructuring, ownership structure, investment banking, insurance, merchant banking, private equity, owner financing, investments in foreign exchange, tolls and mass transportation, alternative energies, environmental impact, tax issues, and international business activities.
Finally, economics is part of finance too. Economics is the study of how people, institutions, and firms make decisions. It is used to examine why some choices are made and why others are not. Studying the various factors that influence the economy helps us design financial instruments to meet economic objectives and goals.