Finance is a generalized term used to describe things about the science, development, and management of financial resources and securities. It includes the accounting, management, and policy aspects of all financial activities. Financial statements are produced by a variety of financial activities, including investment activities, assurance activities, transfer payments, and operations of financial interests. All of these processes take place in organizations. The scope of finance can be examined at various levels, such as individual business activity, sector finance, and national finance.
The scope of corporate finance is broad and usually covers private as well as public non-financial activities. Within corporate finance, there are four main components. These include investment; financing; operations and maintenance; and dispositions or liquidations. All of these have a direct or indirect effect on the financial position of the organization. The investment strategy is primarily concerned with managing the organization’s short-term assets.
Corporate finance includes a wide variety of financial products and strategies. Examples of these financial products are derivatives, foreign exchange-traded instruments, insurance products, financial products, venture capital, merchant financing, and mergers and acquisitions. Derivatives are financial products that allow a company to finance the purchase of another financial product, such as stocks or bonds. This enables the company to use its own credit facilities and money. They can also be leveraged by using financial instruments known as derivatives.
Public finance, corporate finance, and behavioral finance are subtypes of commercial and financial research and analysis subtopics. Public finance focuses on the allocation of resources to meet the objectives of the public good, while corporate finance refers to the management of the business itself. Behavioral finance is concerned with devising systems for making financial decisions based on the anticipated outcomes of past decisions, as opposed to the judgments made by a purely economic principle of individual self-interest.
There are many similarities between the three major types of finance, which are also called organizational finance, capital budgeting, accounting finance, and financial information management. Organizational finance models the financial information that informs the management about how to plan, organize, and control an enterprise. Capital budgeting is the process of deciding how to invest in a company’s capital stock. Accounting finance makes the process of the recording of financial transactions accurate and timely. Financial information management prepares reports that are used to make strategic and practical decisions regarding an enterprise’s finances.
All of these subtopics have a role in corporate finance and affect how managers and other employees make financial planning decisions. These decisions are made based on projections of the current company market, current assets and liabilities, and long-term plans. A manager may choose to implement a certain plan by presenting it to the finance department for approval, or he may delegate this power to one of his lieutenants. Regardless of who makes the decision, all decisions are guided by financial planning principles, which are specified in various guides and textbooks on corporate finance.