INTRODUCTION:
Business concern needs finance to meet their requirements in the economic world. Any kind of business activity depends on the finance. Hence, it is called as lifeblood of business organization. Whether the business concerns are big or small, they need finance to fulfil their business activities. In the modern world, all the activities are concerned with the economic activities and very particular to earning profit through any venture or activities. The entire business activities are directly related with making profit. (According to the economics concept of factors of production, rent given to landlord, wage given to labour, interest given to capital and profit given to shareholders or proprietors), a business concern needs finance to meet all the requirements. Hence finance may be called as capital, investment, fund etc., but each term is having different meanings and unique characters. Increasing the profit is the main aim of any kind of economic activity.
MEANING OF FINANCE
Finance may be defined as the art and science of managing money. It includes financial service and financial instruments. Finance also is referred as the provision of money at the time when it is needed. Finance function is the procurement of funds and their effective utilization in business concerns. The concept of finance includes capital, funds, money, and amount. But each word is having unique meaning. Studying and understanding the concept of finance become an important part of the business concern.
DEFINITION OF FINANCE
According to Khan and Jain, “Finance is the art and science of managing money”.
According to Oxford dictionary, the word ‘finance’ connotes ‘management of money’. Webster’s Ninth New Collegiate Dictionary defines finance as “the Science on study of the management of funds’ and the management of fund as the system that includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities.
TYPES OF FINANCE
Finance is one of the important and integral part of business concerns, hence, it plays a major role in every part of the business activities. It is used in all the area of the activities under the different names. Finance can be classified into 3 categories:
What is Personal Finance?
Personal Finance is managing the finance or funds of an individual and helping them achieve the desired goals in terms of savings and investments. Personal Finance is specific to individuals and the strategies depend on the individuals earning potential, requirements, goals, time frame, etc. Personal finance includes investment in education, assets like real estate, cars, life insurance policies, medical and other insurance, saving and expense management.
Personal Finance includes:
- Protection against unforeseen and uncertain personal events
- Transfer of wealth across generations of the family
- Managing taxes and complying with tax policies (tax subsidies or penalties)
- Preparing for retirement
- Preparing for long term expenses or purchases involving a huge amount
- Paying for a loan or debt obligations
- Investment and wealth accumulation goals
What is Corporate Finance?
Corporate Finance is about funding the company expenses and building the capital structure of the company. It deals with the source of funds and the channelization of those funds like the allocation of funds for resources and increasing the value of the company by improving the financial position. Corporate finance focuses on maintaining a balance between the risk and opportunities and increasing the asset value.
Corporate Finance Includes:
- Capital budgeting
- Employing standard business valuation techniques or real options valuation
- Identifying the source of funding in the form of equity, shareholders’ funds, creditors, debts
- Determining the utility of unappropriated profits for future investment, operational utilization, or distribution to the shareholders
- Acquisition and investment in stock or other assets
- Identifying relevant objectives, opportunities, and constraints
- Risk management and tax considerations
- Stock issuance while going public and listing on the Stock exchange
What is Public Finance?
This type of finance is related to states, municipalities, provinces in short government required finances. It includes long term investment decisions related to public entities. Public finance takes factors like distribution of income, resource allocation, economic stability in consideration. Funds are obtained majorly from taxes, borrowing from banks or insurance companies.
Public Finance includes:
- Identifying the expenditure required by the public entity
- The sources of revenue for the public entity
- Determining the budgeting process and source of funds
- Issuing debts for public projects
- Tax management
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