Finance is a field that deals with money. It encompasses all activities that involve managing money, including the acquisition, distribution, and use of funds. These activities vary according to the type of organization. Generally, the focus of finance is on procurement of funds at appropriate terms, and controlling productivity. However, the field also encompasses other aspects of financial management.
Financial management encompasses a wide range of functions and decisions that are critical for the success of a company. It is closely related to production and marketing, as virtually every aspect of a business revolves around acquiring funds. For example, hiring employees requires cash outlays, and buying new machines will also affect the flow of funds. In addition, marketing is responsible for a company’s sales promotion policies, which also require cash outlays.
Finance is also related to private institutions. It involves the acquisition and management of funds for personal and business purposes. Personal finance, for example, examines day-to-day fund management. Business finance, on the other hand, focuses on the management of finances for profit-making organizations. Nonprofit organizations are also influenced by finance.
Finance executives perform a variety of functions related to money management, from raising capital to determining the rate at which to pay dividends. Another important role of finance executives is to allocate funds to profitable projects. As a result, these executives must consider risk patterns. This is called the risk-return trade-off.
A business needs real assets to continue its operations. These assets include plant, machinery, office or factory space, furniture, and so on. In addition to real assets, a business may also require intellectual property, such as patents, copyrights, and technical know-how. Financial assets, on the other hand, include financial instruments like shares, bonds, and debentures.
In the past, financial management was considered an aspect of economics, but its scope has expanded. Initially, it concerned the collection of funds to run a business. Nowadays, it also addresses the effective utilisation of those funds. A financial manager will analyze every aspect of a business’s finances. He will estimate the required funds and plan for different sources of money.