Fundamentals Of Finance
Fundamentals Of Finance

Finance is the foundation of the basic activity of all businesses and organizations. In manufacturing and marketing, finance functions in the same way as blood functions in the human body. There are various fundamentals of finance which help a business or a person to survive.

Nobody can imagine setting up a business, its operation, and its development. It can be interpreted in many ways, like money, funds, capital, investment, amount, etc. It is a medium for business which involves the acquisitions and usage of funds in different departments like the production department, research department, purchase department, development department, etc. Although you can contact a finance counsellor to know the concept in depth.

Today, in this blog we will discuss fundamentals of finance, types of finance, and some importance of finance. We see few career fields in finance and highest paying jobs.

What Is Finance?

Finance is raising capital and funds for any expenditure. It is the process of conducting different types of funds in the form of loans, credit, and investment capital to those economic institutions that most need them and putting them to the most productive use. It is a term for creating, managing, and studying money.

Finance involves using credit and debits, securities, and investments to fund current projects using future income flows. 

Now that you know what finance is, let’s talk about fundamentals of finance further.

What Are The Types Of Finance

 Fiance is mainly divided into three categories:

  1. Personal finance
  2. Public finance
  3. Corporate finance

What Is Personal Finance?

Personal finance is managing an individual’s funds and helping her/him achieve their goals in terms of savings and investments. It is specific to individuals, and the strategies depend on the individual earnings, goals, time frame, requirements, etc. 

It includes investment in education, vehicles, life insurance policy, real estate, medical, other insurance, savings and expense management.

Personal finance includes:

  1. Investment and wealth accumulation goals.
  2. Preparing for long-term expenses and purchases involving a large amount.
  3. Paying for a loan and debt obligations.
  4. Protection against uncertain and unforeseen personal events.
  5. Transfer of wealth across generations of the family.
  6. Penalties and subsidies.
  7. Preparing for retirement.

What Is Public Finance?

It is related to states, municipalities, and provinces. In short, the government required finance. Public finance includes long-term investment decisions related to public institutions.

 It considers factors like distributions of resources, income, and economic stability. Funds are obtained mainly through borrowing from banks, insurance companies and taxes.

Public finance includes:

  • Tax management.
  • The source of revenue for the public institution.
  • Issuing debts for the public project.
  • Determining the budget process and source of funds.
  • Identifying the expenditure required by the public company.

What Is Corporate Finance?

It is about funding the company expense and building the organization’s capital structure. Corporate finance deals with searching the source of funds and its channelization, also the allocation of funds for resources and hence increasing the value of the company by improving the financial position.

It focuses on maintaining a balance between risk and opportunities and increasing the value of assets.

Corporate finance includes:

  1. Risk management and the tax consideration.
  2. Stock issuance while going public and listing on the stock exchange.
  3. Identifying relevant objectives, constraints, and opportunities.
  4. Capital budgeting.
  5. Employing standard business valuation techniques and real valuation.
  6. Acquisition and investment in stock and other assets.
  7. Identify the funding source in the form of equity, creditors, debtors, and shareholders’ funds.

What Is The Importance Of Finance?

Today, managing finance is a very important business aspect, which means having a chance to work toward a stable and rewarding career in the financial management field. 

It helps to decide what to spend, how to spend, when to spend, and how much to spend according to the fund’s availability.

To know the fundamentals of finance you must know its importance. Here are some points showing importance of finance.

  1. Take better financing decisions.
  2. Aware of the valuation of financial resources.
  3. Understand the requirements for evaluation of investment opportunities.
  4. Able to analyze all opportunity costs.
  5. Put your efforts into the maximization of wealth.
  6. Acquire maximum return on investment.
  7. Managing your personal and professional life in a better way.
  8. Increase your analytical skills.
  9. Understand how to get your cost of capital.
  10. Understand the key success factor of financing.
  11. Deep analysis of the source of funds.
  12. Understand the investor’s life cycle to choose the right investment time.

After reading some of the importance of finance, I hope you know the basic fundamentals of finance. 

Career In Finance:

There are lots of options among careers in finance you can pursue if you want to specialize in finance and you want to have a successful career in professional financial jobs. If you know basic fundamentals of finance then you can ace in any finance career fields.

Take a look at the most popular careers and jobs in finance.

Public accounting

It is a great field of study and practice, comprising various financial services. It is concerned with recording and maintaining money flow for a public company and a private company.

Public accountants also give suggestions and deliver reports to cut down expenses, increase revenue, and improve the financial position.

A Bachelor of Commerce and Business Administration can be considered a CPA ( Certified Public Accountant) qualification to become an internationally licensed accountant.

Corporate finance

It is a subdivision of finance that provides funds for business activities. It deals with funding sources, capital restructuring, and investment decisions. 

Corporate finance includes:

  • Analyzing and forecasting economic trends.
  • Maximize the value of stock.
  • Balancing risk and profitability. 
  • Reviewing company reports and suggesting improvement measures.
  • Performing tasks related to financial risk management.
  • Managing funds and selecting investment portfolios.

Corporate finance professionals are hired in senior and junior capacities depending on their educational qualifications, interests, and acquired skills.

Investment banking

It finds a place among the most prestigious finance career options. Investment banking is also a lucrative path regarding professional growth and salary package. Investment bankers are responsible for tasks related to financial remodeling, and their work involves working with data and numbers and introducing decisions that improve business operations.

These trainees must have an interest in and insightful knowledge of financial markets and economic trends. Investment bankers hire interns and prospective associates from top-tier educational institutions. An MBA in finance and a law degree can benefit this field.

Portfolio management

It is a fusion of commerce and science, requiring business, analytics and mathematics knowledge. 

 As a portfolio manager, it would be your job to guide organizational policies on investments and decisions regarding asset allocation. You do not pore over individual investments but look at the overall investment mix of your clients, who may be individuals or institutions.

Economics, accounting, and business administration education are ideal for these careers. It is also important to get training in statistics and refine your mathematical skills to pursue portfolio management jobs.

Risk management

Risk management professionals can identify market risks and recognize poor investment outcomes. A risk management professional’s primary duty is to strategically maximize returns and minimize risks. They use their mathematical powers and analytical reasoning skills and advise their clients on different business matters.

It is an in-demand profession with companies.

For risk management, you should consider completing an advanced degree like MBA and a post-graduate diploma in risk management.

Financial planning

Companies and individuals require the services of financial planners to secure their current financial stability and future financial stability. Here are some areas for financial planners to concentrate on specifically like tax planning, investment growth, retirement planning, wealth management, etc.

  • Self-employment
  • Wealth management and financial service firms
  • Non-banking financial companies
  • Knowledge processing organizations
  • Finance journalism 
  • Asset management companies 

A PG degree like an MBA, MS, or MA is preferable for obtaining employment as a financial planner in established organizations.

Commercial banking

Commercial banks offer many services to individuals and businesses. The offerings range from current accounts and savings to debit and credit cards to personal, education, home and other loans.

The primary duty of commercial banking professionals is to maintain relationships with the bank’s current customers and find new customers to keep the business running.

A UG degree in business and commerce can qualify you for an entry-level position like a credit analyst. You can develop your profile with an MBA degree and advance to business development and client-facing roles like account management.

Highest paying jobs in finance

These are some of the highest-paying jobs in finance.

s.no      Job titlesSalary/ per year 
1Investment banker66,784$
2Information technology auditor 101,751$
3Compliance analyst 59,016$
4Financial advisor74,055$
5Insurance advisor89,295$
6Financial analyst70,677$
7Senior accountant73,547$

Difference between finance and accounting

Here are a few differences between finance and accounting.

s.noFinance accounting
1Finance focuses on the future Accounting focuses on the past 
2Training is not necessary for financeTraining is necessary for accounting
3In finance training, you have to spend some time on macroeconomics and international finance In accounting training, you must spend a long time on business law,tax law,and accounting theory 
4Finance deals with risk analysis and capital budgetingAccounting deals with trial balance and balance sheet
5Finance used in banks, consultancy, corporationAccounting used in public/private accounting firms, corporation 
6Finance based on an accrual system Accounting based on cash flow system and receipt/payment account 
7Finance focuses on analyzingAccounting focuses on accuracy 
8The main objective of finance is to manage, control and the decision about business financeThe main objective of accounting is to collect, classify, and present the current financial information about the business

Finance is an art and a science.

The simple answer to this question is “both”. For many people, finance is equal to math, which is all about numbers, science, proven identities, and historical performance. For other people, finance is about psychology, emotions, etc. 

What is science?

It is a systematic enterprise that builds and organizes knowledge through testable explanations and predictions about the universe. Finance also helps to create and arrange knowledge in the form of universe-related explanations and predictions that can be put to the test. That’s why we can say finance is a science.

What is art?

Art is the way of doing something effectively and efficiently. It is the expression and application of human creative skills and imagination.

These are basic fundamentals of finance, which help a business or a person to survive.

Conclusion

After reading this blog on the fundamentals of finance, I hope you understand the fundamentals of finance, and its types. We also discuss the importance of finance, a career in finance, and the highest paying jobs. In the end, we see few differences between finance and accounting and finance in art and science.

FAQs Related To Fundamentals Of Finance

What does finance mean?

Finance is raising capital and funds for any expenditure. It is the process of conducting different types of funds in the form of loans, credit, and investment capital to those economic institutions that most need them and putting them to the most productive use. It is a term for creating, managing, and studying money.

What are the three types of finance?

Fiance is mainly divided into three categories:
1. Personal finance
2. Public finance
3. Corporate finance

Why should I study finance?

Accounting helps us to manage our money, while finance assists in helping us make better financial decisions. You apply finance in many real-world financial situations, including: creating a spending limit for food. Choosing the percentage of your income that you wish to invest, save, and spend