Everything You Need To Know About Finances

THE WORLD of FINANCES

Finances are a vital part of the economy and administration. They consist of the existing relationships between it and the economic actors, as well as the distribution and use of money funds. In the case of finances interests: banking, business investment, and debt, among other aspects, are part of said interests.

To begin with, the financial activity sector exists from the moment in which money is used as an instrument of purchase or sale.

Since the beginning of society itself, there has been a need for economic exchange in any of its forms. Not necessarily in the monetary aspect, but in the way in which it can be carried out by the exchange of products, land, acquisitions, etc. The need to exchange resources to obtain benefits is part of the finance sector, even from the years when this term was not even defined.

Corporate Finances

Firstly, corporate finance represents (in the main field of finance) those responsible for making decisions in the business area for the use of capital. This in addition to making the business investment decision with the intention of increasing said investment to the maximum level.

This means that corporate finance is in charge of acquiring economic funds and distributing them in the best way. A way in which the greatest amount of possible benefits are obtained




Valuation of the Asset

Second, asset valuation consists of the process of calculating or estimating the value of an asset.
Valuations are essential for multiple reasons. For example, for investment analysis, budgets, mergers and acquisitions, financial reports, and many more. In addition, they are carried out for a financial asset or liability.

Definition of Finances

In this sense, finances have a series of characteristics that define them. Among them, we can find the fact that they handle money and capital goods. Also, their study is within the areas of economics, administration and accounting. Furthermore, they improve money management in all areas where it is developed (public or private companies, families or individuals).

On the other hand, they have repeatedly been said as an economics synonym, which is a mistake. Finances are nothing more than a branch of economics, which has a much broader focus. Indeed, there is a relationship between them, as one affects the other mutually.
In that way, there is a classification for finances, which is divided into specific study sectors. Two main branches of finance are generated (public and private) and some others more presented and defined below are subdivided from them:

PRIVATE FINANCES:

They are in charge of managing resources in individual (private) entities. In turn, this has its own classification:

  • Personal finances. They are those that represent the personal management of money. For instance, the expense that is made, savings and investments. That is to say, regarding how to spend the money
  • Family finances. It is the sum of the finances of all the members of a household, making joint plans according to how to spend the money
  • Corporate finances. In them, the management of companies’ (and private organizations’) finances is carried out.

PUBLIC FINANCES:

Different terms are handled from those of private finances, in this type of finances the sectors and public entities that the State administers are covered. This is subdivided into the following areas:




  • Fiscal policy. This is nothing more than the form of administration the state has of the resources it obtains from its citizens.
  • Public spending. This means how the state manages the resources it possesses and how much of this is invested back in society in purchases, jobs, among others.
  • Public debt. This happens in cases where the State runs out of funds or money and must request loans from private sectors to be able to solve the situation, thus creating a debt.
  • Public budget. This is aimed at future expenses the state may have, in investment projects for example, all this taking into account its current financial state.

IMPORTANCE of FINANCES

It is substantial to know that the resources and assets of any entity are finite, while the expenses that must be covered, conversely, are infinite. For this reason, the study and application of finances are of the utmost importance, because they allow the management of capital in the best way. This for keeping the economic sector active, producing the resources and income necessary to cover expenses and keep the economy afloat the economic sector.