Finance is an umbrella term for things regarding investments, the study, generation, and control of funds and securities. The field encompasses many areas including: investing, banking, economics, estate, insurance, pension, risk, securities markets, and other financial topics. Many people have heard the term “finance” and “financial” but do not know exactly what it means. Some may even confuse finance with accounting. Both are related but they are not the same thing. Accounting is an area of business accounting that reports information to be used by managers in the areas of businesses like sales and inventory, financing, and budget planning.
Accounting reports information about the activities of businesses and their financial condition, reporting laws, restrictions, standards, principles, and restrictions on borrowing. Financial accounting uses the balance sheet as a method of measuring and comparing the performance of a company’s assets and liabilities. Other financial terms used in banking are leverage and risk. Leverage refers to the amount of credit available to a bank based on the amount of debt a borrower has and the potential repayment ability.
Business finance refers to the economics of the buying and selling of securities in the stock market and other financial markets. It is the subject of investment banking and business banking. The scope of business finance is broad and can include mergers and acquisitions, partnerships, private equity, lease financing, owner financing, financial products, and more. Business finance is one of the most important aspects of the overall field of business accounting.
The subject of economics is also broad and includes many different areas of public finance such as state and local finance, personal finance, industrial economics, globalization, international finance, and microeconomics. Economics is an important part of all industries and businesses. In fact, the whole economy depends on the success of its various industries. Business owners, therefore, consider economics a key element in their operations.
Small business finance, on the other hand, is all about the financial aspects of owning and running a small business. Small business finance includes working capital options, merchant cash advances, credit card financing, and small business loans. All these tools help small businesses gain and manage the means to meet their day-to-day financial obligations. In general, small business finance requires sophisticated financial analysis tools to provide accurate and reliable estimates.
Corporate finance refers to the buying and selling of securities by corporations to raise funds. It includes issues related to the purchase of stocks from the public, bonds, mutual funds, and property and land contracts. The basic function of corporate finance is to buy low and sell high. However, corporate finance is much broader and covers a wide range of financial activities.
Financial systems are complex and need highly sophisticated mathematical tools to calculate the value of different financial assets and liabilities. Accounting systems are used to record the financial transactions, collect information, analyze the data, and produce reports on the status of those transactions. Finance as a discipline is incomplete without accounting. Financial systems also include the management of capital assets, financial risk, long-term finance, insurance, and taxation. The field of finance thus encompasses many fields such as management of plant and equipment production, retailing, construction, transportation, and banking. Each one of these branches helps in the efficient management of the organization’s resources and contributes to its growth.
The study of economics is further subdivided into micro and macro economics. Micro economics concerns the economic activities of a city, state, national, or global level. Microeconomics deals with individual households, firms, corporations, international organizations, and international monetary instruments. While macroeconomics deals with the overall economic problems of the society as a whole.