Finance
Finance means the study and dealing of the methods by which people or organizations raise, assign or spend money resources over time. The term “finance” encompasses the study of money or other assets, the management and control of these assets, profiling and managing project risks and the science of managing money.
Personal finance involves paying for daily necessities, purchasing insurance, handling durable goods, repayment of a loan, investing and saving for superannuation. The person is involved with the following personal finance queries – amount of money required by an individual or family in the future, source of this money, protection from unpredicted events and risks in financial market, gifts and inheritance in a family, effect of tax subsidies and penalties.
Corporate finance is the task of supplying funds for a corporation’s activities. In this, risk and profits have to be balanced. One has to try to maximize the corporate wealth and the value of the stock. The ownership equity supplies the long term funds. Long term credit is given in the form of bonds. The balance between the long term funds and long term credits forms the corporate capital structure. Short term funding is supplied by banks as an extension of the line of credit.
Long term funds are purchased and sold as shares, debentures, long term loans, reserve funds and euro bonds. Short term savings like credit on open account, bank overdraft, short term loans, bills of exchange or factoring of debtors are used by financial organizations. Borrowed capital includes redeemable debentures, irredeemable debentures, debentures to bearer and hardcore debentures. Own capital is provided in the form of ordinary preference shares, cumulative preference shares, participating preference shares, ordinary shares, bonus shares and founders shares.
Shareholders are effective owners while debenture-holders are creditors. Shareholders can be elected as directors, while debenture-holders can’t be. Shareholders get profit in the form of dividends, while debenture-holders get a fixed rate of interest. Shareholders do not get money in the absence of profit, while debenture-holders get.
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