Finance

The vague term of finance

Finance is often a very vague term, used to refer to all things about the study, generation, and management of financial resources. In particular, it refers to the questions of where and why a person, organization or government obtain the money they need – usually referred to as capital in the business context – and how they use or spend that capital.

Finance can also refer to the business process itself. This means that although a business is running, or even if it is growing or changing, it must still be running on the basics of finance and its many facets. From the purchase of raw materials to the purchase of products and services, there are many aspects of finance that must be studied in depth, and these aspects include:

Investment: There are three basic areas of finance that are most important to investors: the purchase of assets (investment), the production of goods and services (capital) and the payment of debts (interest). Capital is used to purchase goods and services produced by the production process and this includes the cost of raw materials, which includes the cost of labour and technology. There are three ways that capital can be invested: by borrowing, buying land and constructing a building, or making payments to people who own property. All of these areas have a direct relationship with the production of goods and services produced by the production process.

Interest: The money that the lender charges for borrowing is known as interest. The amount of interest that a borrower pays on his or her capital is called profit, while the rate of interest that the borrower charges on the amount of capital that he or she borrows is known as risk. Read more about interest at Mike’s Economy.

Cash flow: A business will either have cash available for spending, or it will have cash available only as an afterthought when the sale price of the capital stock has been paid. Cash flow is a key aspect of the management of finance, since there is always the possibility that the business will not actually make the purchases required to keep it going. Cash flow can come in the form of sales, the value of retained earnings, or the value of money owed to a lender. The value of money owed to a lender refers to the amount that a lender receives from a debtor before the lender gets his or her money.

Money management: Money management involves many different factors, including borrowing and spending; it also involves the process of earning money, such as by paying interest on money owed to lenders, purchasing raw materials and working capital. {or paying dividends. There are a number of different kinds of finance, such as stock investing, mortgages, business lines of credit, business loans, venture capital, public finance, etc., which have varying effects on the way that people and organizations use and manage their capital.