Finance is a large field with many different subcategories. All are important to someone wanting to succeed financially, but not all apply to everyone. It seems to me that the common way of thinking about finance is as if it was a black box where all you had to know was how to plug it in and then that would be fine. However, anyone who has studied finance has shown that much more is known about a topic than that simple explanation. This article will touch on some of the more interesting aspects of finance.
First off, finance includes all aspects of the business world, including banking. Businesses obtain credit from banks in one form or another. For example, if a business needs money for equipment, they may ask for bank financing to purchase that equipment. Banking influences businesses in so many ways that it is no wonder people tend to think of finance as being much broader than it actually is. Also, just because a company is involved in only one form of finance, it does not mean that all of those aspects are sub-categorized within the broad field of finance.
Businesses also obtain financing in other ways besides banks. They can obtain credit from investors, hire employees, obtain manufacturing permits, purchase land, and obtain various other financial systems. In each of these cases, the companies involved have unique needs that must be addressed to properly fund their operations. Some businesses are able to effectively manage their debt and capital structure through the use of informal financing, while others are not. The wide variety of methods to finance can be used to finance is quite impressive.
As mentioned above, the entire point and purpose of investing is to raise funds for the operation and growth of the enterprise. Many individuals, in my opinion, regard the word “finance” as referring exclusively to bank lending, when it is much more. For example, I consider credit facilities such as the CDIC, NMLS, and similar agencies as forms of finance.
My opinion is that the modern financial theories of today truly do not distinguish between equity and debt finance, at least not in the modern sense of the term. Equity financing is what I would call total financing, because income is raised by borrowing against assets. The concept of behavioral finance recognizes that people consistently make investment decisions based on expected future earnings. That being said, they are motivated by other factors. Therefore, the traditional concept of equity financing is simply outdated. However, this is not to say that we should completely discount the role of the mortgage in modern day finance.
There is an enormous amount of debate currently regarding the best way to analyze finance. Although much of the debate relies on economics and accounting principles, there is still quite a bit of disagreement regarding which of the two best methods of financing is the correct method. One thing is certain, however. Finance in today’s corporate environment is certainly a key component to all of the major business activities. Whether one believes that finance truly makes the world go ’round’ or if one feels that accounting and economics are simply overrated, it is indisputable that finance plays an important part in virtually every aspect of modern business.