Fundamentals of Finance

Written By Alla Levin
November 05, 2019
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Fundamentals of Finance

Finance describes the analysis and allocation of financial instruments, like money and investments. It is divided into three major categories; cooperate, personal, and public finance.

Cooperate includes managing liabilities, assets, duty, and revenues of an organization. Personal investment describes the financial activities and decisions of a household and individuals.

For example, savings, insurance, retirement plan, budget, and mortgage planning. Public involves the government concerns like expenditure, stabilization of policy, systems of taxation, budget.

There are additional minor categories of banking, which include behavioral and social finance.

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Personal finance

It involves evaluation of the family’s and individual’s present financial situation, prediction of short-term and long-term needs and wants, executing a plan to meet their needs without and financial constraints.

It solely depends on your living necessities, earning, and your ambitions and desires. It is not restrained to buying products for individual’s reasons, for example, home insurance, credit cards, etc.

It is also a necessity for the macro accomplishment of the national economy.

Areas of focus in this fundamental

  • Adequate protection. Entails analysis on how you can protect yourself from unforeseen risks. These risks include; deaths, health, property, among others. You can purchase an insurance contract to help you protect your household from the mentioned risks.
  • Financial position. It is concerned with how well you understand your resources that are available by looking at your net worth and cash flow.
  • You can calculate your net worth by adding up your assets under your control then minus your household liabilities.

Your cash flow can be calculated by adding up all the expected sources of income in a year, minus the anticipated expenses in the same year.

All this helps a financial planner to predict the time you will be able to accomplish your personal goals.

Public FinancePublic Finance

Fundamentals of finance: the national government supervises the dispersion of income, distribution of resources, and balancing of the economy. By doing so, the government can counter market failure. Taxation enables the government to fund all these programs.

The federal government is also able to support its projects through the earned dividends from its companies and borrowing from; other governments, insurance companies, and banks.

In a country where there is two government that is the local government and state government, they receive aid and grants from the national government.

Other sources of public investment are; revenues from fees and licenses, auction of government securities, users charges from facilities like airport services, park fees, and fines as a result of breaking the law.

Corporate financePublic Finance

It deals with the capital designs of the corporation, source of funds, action taken by the manager to add the value of the cooperation to stakeholders, tools used when allocating the financial resources.

Through planning and implementing organizational resources while balancing profitability and risks, the company can maximize the value of the business.

Corporate investments include;

  • Raising of the monetary funds. Funding is collected from several sources, which include; creditors, banks, shares, financial institutions, etc. it is the work of a financial manager to manage the company’s economic affairs.
  • Planning of investment. The financial manager makes the company’s business plans. He or she assesses the source of money, the required investment by the company, and how to maximize the funds.
  • Monitoring of monetary funds. It is the work of the business manager who controls the economic affairs of the company. Monitoring the accounts of an organization entails;
  • Minimizing the company’s cost of funding
  • Minimizing the misuse or mismanagement and wastage of company’s money
  • Ensuring a company gets maximum return on the business
  • Reducing the risks of the investment in the business

Behavioral financeBehavioral finance

It studies how the emotional and mental state of a manager of an investor affects the market during the decision-making process, which will either impact their areas negatively or positively. Behavioral commerce includes;

  • The study of how emotional and mental state affects and effects on trade and prices.
  • Empirical studies. It explains the essential deviations from classical theories.
  • Study on the models and speculative assets markets.
  • Forecasting relying on the methods above.

Conclusion on Fundamentals of Finance

For a company owner or a manager in an organization, it is your primary goal to know the different types of monetary resources.

A company will not be able to run its business operations without money. Funds are also required to run your organizational activities.

It is advisable to select the right fundamentals of accounting that will best suit your organization.

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