Academic discipline studying businesses and investments
Finance can be split into three sub-categories: public finance, corporate finance and personal finance.
Effects of tax policies (tax subsidies or penalties) management of personal finances Effects of credit on individual financial standing Development of a savings plan or financing for large purchases (auto, education, home) Preparation for retirement/ long term expenses
Personal finance may involve paying for education, financing durable goods such as real estate and cars, buying insurance, e.g. health and property insurance, investing and saving for retirement. Personal finance may also involve paying for a loan, or debt obligations. Managing these portfolio risks is most often accomplished using asset allocation, which seeks to diversify investment risk and opportunity. This asset allocation will prescribe a percentage allocation to be invested in stocks (either preferred stock or common stock), bonds (for example mutual bonds or government bonds, or corporate bonds), cash and alternative investments. Although it is in principle different from managerial finance which studies the financial management of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms. Corporate finance generally involves balancing risk and profitability, while attempting to maximize an entity's assets, net incoming cash flow and the value of its stock, and generically entails three primary areas of capital resource allocation. Short term financial management is often termed "working capital management", and relates to cash-, inventory- and debtors management. Corporate finance also includes within its scope business valuation, stock investing, or investment management. active versus passive hedging strategy Measure the portfolio performance
Financial management overlaps with the financial function of the accounting profession. However, financial accounting is the reporting of historical financial information, while financial management is concerned with the allocation of capital resources to increase a firm's value to the shareholders and increase their rate of return on the investments. Financial risk management, an element of corporate finance, is the practice of creating and protecting economic value in a firm by using financial instruments to manage exposure to risk, particularly credit risk and market risk. It focuses on when and how to hedge using financial instruments; in this sense it overlaps with financial engineering. Similar to general risk management, financial risk management requires identifying its sources, measuring it (see: Risk measure#Examples), and formulating plans to address these, and can be qualitative and quantitative. The lender can find a borrower—a financial intermediary such as a bank—or buy notes or bonds (corporate bonds, government bonds, or mutual bonds) in the bond market. Finance is used by individuals (personal finance), by governments (public finance), by businesses (corporate finance) and by a wide variety of other organizations such as schools and non-profit organizations. In corporate finance, a company's capital structure is the total mix of financing methods it uses to raise funds. This may include the objective of business, targets set, and results in financial terms, e.g., the target set for sale, resulting cost, growth, required investment to achieve the planned sales, and financing source for the investment. A budget may be long term or short term. Budgets will include proposed fixed asset requirements and how these expenditures will be financed. A cash budget is also required. Cash collections – includes all expected cash receipts (all sources of cash for the period considered, mainly sales) Cash excess or deficiency – a function of the cash needs and cash available. Cash needs are determined by the total cash disbursements plus the minimum cash balance required by company policy. Financial economics is the branch of economics studying the interrelation of financial variables, such as prices, interest rates and shares, as opposed to goods and services. Financial economics concentrates on influences of real economic variables on financial ones, in contrast to pure finance. It centres on managing risk in the context of the financial markets, and the resultant economic and financial models. Financial econometrics is the branch of financial economics that uses econometric techniques to parameterize the relationships suggested. Financial mathematics is a field of applied mathematics, concerned with financial markets. Generally, mathematical finance will derive, and extend, the mathematical or numerical models suggested by financial economics. In terms of practice, mathematical finance also overlaps heavily with the field of computational finance (also known as financial engineering). See Outline of finance: Mathematical tools; Outline of finance: Derivatives pricing.
Researchers in experimental finance can study to what extent existing financial economics theory makes valid predictions and therefore prove them, and attempt to discover new principles on which such theory can be extended and be applied to future financial decisions. Behavioral finance has grown over the last few decades to become central and very important to finance. Behavioral finance includes such topics as:
Empirical studies that demonstrate significant deviations from classical theories. A strand of behavioral finance has been dubbed quantitative behavioral finance, which uses mathematical and statistical methodology to understand behavioral biases in conjunction with valuation. Business qualifications:
Summary of this Wikipedia page.