Financing Methods
Finance is a broad term covering various issues concerning the creation, management, investment, and allocation of funds. All these three terms have many variations, but they basically mean the same thing. In any case, a business can be described as being under the wing of finance. It is, therefore, important for any business to study and understand the field.
Finance may be subdivided into three subparts. These would include cash flow, capital investment, and venture capital. Cash flow involves the movement of current assets and funds between actual requirements and expected future requirements. Capital investment refers to the pumping of new funds into a business to increase its net worth. Venture capital is the raising of new funds for particular purposes such as expansion or new building construction.
Finance is often seen as part of economics, which studies the interaction of economic agents and the economic environment. Finance has also evolved as part of macro economics, which studies the whole economy in terms of the distribution of income, prices, production, consumption, and resources. Within the micro and macro economics, there are four main concentrations that include asset pricing, savings and loan, debt financing, and nonmonetary factors.
Accounting is part of the larger field of economics. Accounting studies the process by which information is prepared, monitored, collected, and presented for analysis, decision making, and control. This also includes valuing the assets on hand and liabilities that are owed to others. Unlike economics, accounting does not directly concern itself with economic issues; however, it is used to create policies, procedures, and systems that affect an enterprise.
The first step that should be taken in establishing a firm’s finance is to determine its medium and long-term goals. A company can be categorised into different types, depending on the scale on which it operates. There are also several sub-categories within each main corporate category. Some examples of the broad categories are enterprise financing, merchant banking, landlord finance, investment finance, private funding, public sector finance, and wholesale financing. All of these sub-categories and sub-groups offer diverse methods of financing options available to businesses.
The main objective of finance is to facilitate the allocation of resources to meet the objectives and purposes of the enterprises. The objective of public finance is to ensure the financing of public services such as health care, education, roads and public transportation. The objective of corporate finance is to ensure the generation of profits for the benefit of the owners. Behavioral finance is an area of study that studies the social behaviors associated with monetary decisions and the effect of those decisions on the firm’s overall profitability. In the contemporary financial framework, the concepts and theories of traditional economics have been replaced by that of behavioral economics, which regards the factors that lead people to make choices.
