What is Finance?
Finance means the study of managing money and finding the required funds. The very foundation of the economic world is Finance. Its components are financial service and financial instruments. Basically, finance is about acquiring funds and their optimal management with respect to businesses. Capital, funds, money, and amount are a few abstractions of finances however they all have their separate entity. In order to enhance business development one must study and understand the concepts of finance thoroughly. The definition of Finance has always observed that it is subjected to improvisations.
Definition of Finance by Different Authors:
Here are some of the definitions of finance by different authors. According to the Oxford dictionary it says that, the word ‘finance’ indicates ‘management of money’.
Webster’s Ninth New Collegiate Dictionary has given two definitions of finance. The first one says, “Finance is the money resources, income, etc. of a nation, organization, or person.” The latter one is “Managing or science of managing money matters, credit, etc.”
Khan and Jain, define finance as the art and science of managing money.
Guthumann and Dougall give their definition as following, “The activity concerned with planning, developing, managing, administering and increasing of the capital used for business purposes is known as finance”.
According to Ivan Thompson, “the term finance comes from the Latin “finis” which means end or finish. Its implications affect both individuals and businesses, organizations and states it has to do with obtaining and using or money management.”
In the words of Wheeler, “The overall assessment, acquisition, and conversation of capital funds to accomplish important objectives of a business enterprise including the financial requirement is called business finance”. Investopedia defines finance as the science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities.
Examples of Finance:
Let us take the finance examples to understand this better. Assuming that Mike is a finance management in XYZ Company, Let us now see finance examples of short-term finance as well as example of long-term finance with respect to personal as well as company point of view.
1. Personal Finance Example of Short-Term Finance:
Mike has newly joined the XYZ Company and he hasn’t yet received last month salary as well as final settlement amount from previous employer. Mike is running out of finance for paying his rent and electricity bill. In such case, Mike can choose to take a short-term finance like: Payday Loan, Credit Cards, loan from friends etc. to fulfil his short-term requirements.
2. Business Finance Example of Short-Term Finance:
XYZ Company is in need of immediate finance to buy automated machinery to increase production. Here company can think of short-term finance options like: line of credit, bank overdraft, term loan from financial institutions, etc. Here company can choose to repay the borrowed amount in the period of 6 months or within a year.
3. Personal Finance Example of Long-Term Finance:
Mike is thinking of doing MS course from reputed university but he doesn’t have enough funds. In that case he can think of taking student / education loan as a long-term finance option. By taking student / education loan he can choose flexible option to repay it either in 5 years or 10 years of period.
4. Business Finance Example of Long-Term Finance:
XYZ Company has filled the tender recently and received a large contract from government which need to fulfil in next 15 years. XYZ Company need a bigger plant with high-end technology driven machineries to accomplish the order received. XYZ Company has never estimated such a large contract as well as requirement of huge amount of money. Now when company is exploring the ways they can get a long-term finance for 15 years, company can think of options like: issuing equity shares, issuing debenture / bonds, venture funding, long-term Loans from Commercial Banks or non-banking financial institutes and much more.
Financial knowledge is one of the important parts of education which requires in day-to-day lives. In this financial world everyone has to learn what is finance with examples of finance. In whatever field you are working you need to understand meaning of finance and gradually improve your knowledge on finance. This will benefit you towards financial stability and peace of mind from the future prospective.
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» e-Learning Chapter 2: What is International Finance?
» e-Learning Chapter 3: Importance of Finance
» e-Learning Chapter 4: Features of Finance
» e-Learning Chapter 5: Source of Funds
» e-Learning Chapter 6: Types of Capital
» e-Learning Chapter 7: Types of Capital Market
» e-Learning Chapter 8: Types of Investment
» e-Learning Chapter 9: Short Term Sources of Finance
» e-Learning Chapter 10: Long Term Sources of Finance
» e-Learning Chapter 11: Finance Quiz – Finance Basics for Beginners