Finance Management Strategy
Finance is a broad term encompassing a lot of things about the study, generation, and disposition of funds and securities. It is also used in the context of banking, insurance, and investment. In fact, it is a very complex field. The field of finance is so broad that you could study almost any aspect of it if you wanted to. You would be able to go on to specialize in any area of finance as your career advancement progressed.
There are three main parts to understand when studying finance. These are money, time, and risk. Understanding these three parts is critical to understanding finance. If you can understand money, time, and risk then you will be able to grasp all the concepts of finance. Here is an outline of the three parts as they relate to finance.
Money is the source of finance. The supply of money, which can be both long term and short term, determines how finance is used and invested. When investing in stock and bonds, for example, money is used to purchase these investments. Money also causes growth in other financial activities such as savings, lending, and corporate finance. The value of money is determined by the value of the various financial activities that finance.
Time is the time period over which the value of finance is measured. This includes the amount of time it takes to earn the interest on an investment, research and development needed to make the securities available to the public, and the operating costs for the business. All these take up the time period over which money is made available to add to the total value of corporate finance. The availability of finance is the driving force behind all economic activity and changes in financial markets. A good working knowledge of the financial markets is essential for a manager of a company’s finance department.
Risk management is the study of the possible losses to the company from future investments. In the real world, companies make investments with a hope that they will make money in the future. They do this by purchasing certain assets or producing revenues from certain sectors of their industry. A manager of a company’s finance department would do well to have a strong knowledge of the accounting practices of different types of industries and their products. The accounting records of a given industry are highly important indicators of the health of that industry.
Finances are part of the mix of personal finance, which is the study of one’s monetary resources. Personal finance is the sum total of all the money that a person owns, including cash and bank accounts. Because many people are only comfortable with handling their finances by using their personal credit cards, personal finance is rarely included in the list of required finance skills. It is a subset of accountants’ and tax experts’ specialties. The tax savvy manager of the finance department will be responsible for managing the company’s investment portfolio. While money management is the core of personal finance, there is still much left to learn about other important areas of finance, like asset allocation and derivatives.
