Finance is the management of huge amounts of money by large companies or governments. If the word ‘finance’ is used in verb form, then it means offering funds for an enterprise or a person. Also, the word finance is used to denote any kind of money management.
Finance is considered as the lifeline of all the activities like social, economic and administrative. Finance flows from the public as savings to banks, bonds, debentures or shares to entrepreneur and taxes to the government. It is then used for conducting a variety of activities by the receiver. Then the finance flows back to the public as income.
Features of finance
Acquisition, allocation and the utilization of funds- As function finance deals with the acquisition of funds, allocation and then the utilization of funds. The business organization should ensure that the adequate funds are available at the right cost from right sources at right time. Also, the business needs to decide upon the source of raising fund whether it should be through the lending from financial institutions or by the issuance of securities. The financial market plays a huge role in providing funds to the organization. People enter the world of trading in the financial market to make money. Learn more about earning money here. Once the funds are raised by the organization, it needs to be allocated efficiently to different projects so that the final goal of the business to earn a profit is achieved. The proper utilization of the funds is depended on the proper asset management policies, efficient working capital management, and sound investment decisions.
Maximizing the wealth of the shareholder- The objective of business would be to create and maximize the wealth of the investors. It is measured by the share price of the organization. The share price of the organization is its present and the expected future earnings. Finance plays the role of defining the policies and finding ways to maximize the earnings.
Financial management- The financial objective of the organization is to maximize the economic welfare of the owners. Hence, the financial objective of a business is to make sure there is a regular and adequate supply of funds to business and offers a good rate of return. It offers a definitive and solid system for internal financing, investment, and controls. Finally, it attempts to reduce the cost of capital. It is done by developing an economical and sound combination of corporate securities. The above-mentioned points make finance the lifeblood of a business.