Finance is an extensive term used to describe money management and the process involved in acquiring funds. Finance embodies banking, credit, investment, assets, and debts that constitute financial systems. The financial system comprises three main subcategories: personal finance (individual), corporate finance (business), and public finance (government). The financial sector is the main driving force of a nation’s economy.
Meaning of Finance
According to the dictionary, finance is described as managing a huge sum of money, mostly by governments or large companies. As a verb, finance is the act of providing funds for an enterprise or a person. Finance originates from the French word “Finer,” which means “to end” and “to pay.” “To end” in this perspective means to settle a dispute or debt that is due. Adapted into English, finance means the management of money.
Definition of Finance
Finance is closely related to money since it’s a means of exchange. The financial sector drives the economic, social, and administrative industries. From savings to financial institutions and governments’ taxes to share capitals, the finance function can be seen in all activities and processes.
Below are some of the standard definitions of finance:
- In economics, finance has termed a branch of economics that deals with resource allocation, management, investment, and acquisition.
- In business, finance is defined as raising money by issuing and selling equity or debt.
- In science, finance entails the creation, management, and study of money. It also encompasses banking, credits, liabilities, assets, and investments.
- Experts describe finance as the allocation of assets by people overtime in certain and uncertain conditions. They believe assets are priced according to their risk level and return rate.
- Based on the systems view, finance comprises financial systems such as the public, private, and government institutions. It’s also the study of finance and financial instruments.
The finance function deals with the various activities, functions, and processes associated with financing. It incorporates budgetary functions, cash flow, and cash management, risk and return management, among other functions.
Terms Associated with the Financial Industry
There is a broad range of terms and topics associated with financial systems. Here is a list of some of which you’re most likely to come across in the industry:
- Risk and return
- Profit
- Financial statements
- Shareholders
- Behavioral finance
- Cost of capital
- Cash flow
- Interest rates
- Dividends
- Yield
Features of Finance
Every shareholder wants to make profits from business, and this is usually estimated in the form of stocks by the organization. How can one possibly achieve this financial goal? Some features distinguish business finance from other branches of finance. Some of these features are explained below:
Investment Opportunities
Investment is the utilization of money to make returns or profit. Purchasing land or home, investing in a business idea, and acquiring financial securities like bonds or shares are investment opportunities in the market one can delve into. These investment opportunities can generate wealth with expected returns in the future. The returns can change based on economic factors.
Internal Control System
Internal controls are a set of rules, regulations, and procedures exercised on the inception of a company to curb fraud, thus promoting transparency and financial information integrity. Internal controls also help improve accuracy and early financial reporting, thereby enhancing operational efficiency. These rules and regulations are subjected to change over time based on business requirements. They’re often monitored for compliance and consistency. The internal control system is composed of a controlled environment, risk assessment, control activities, information and communication, and monitoring.
Allocation and Utilization of Funds
Finance has to do with acquiring, allocating, and utilizing funds. A business must ascertain that adequate funds are made available by the right sources at the appropriate time. The business needs to choose the method by which it will raise funds through securities or bank loans. After acquiring the funds, there will be a need to allocate the funds to various projects and ventures. Every business aims to make profits, dependent on the efficient and effective use of allocated funds. Appropriate use of funds depends on proper investment decisions, control, management strategies, and policies.
Channeling Funds
It’s a known fact that the financial system is a crucial aspect of every economy. From people who have saved many funds by spending less to short of funds as a result of their spending habits, this financial sector facilitates the channeling of funds.
Diversify your Investment
Another feature of finance is the diversification of investment. One great way to decrease risk and increase profits and earnings is by diversifying your investment. Many experts suggest one to diversify in many areas as investing funds in a particular source increases risk. To diversify your investment, you can allocate 60% in property and assets, 20% in equity funds, and 20% in mutual funds.
Make Financial Decisions
Decision making is a critical element of financing. Having good financial planning skills without making decisions will do you no good. Financial planning, management plans, and decision making are expedient in business as they are instrumental in making good investment returns.
Financial Management
The financial objective of most organizations is the maximization of profits and economic welfare. Any company’s financial scope is to ensure adequate funds are consistently available for the business’s running. Another objective is that an optimum return rate is provided to the suppliers of capital. Following the liquidity, profitability, and limiting risk policy enables businesses to utilize capital and resources efficiently. Financing leads to an explicit system of internal controls, investment, and management.
Careers in Finance
The meaning, definition, and finance features would be incomplete without examining the career options available in the financial industry. Here is a list of some of the career paths in finance:
- Commercial banking
- Corporate finance
- Personal banking
- Financial planning
- Investment banking
- Insurance
- Equity research
- Wealth management
- Mortgages/lending
- Auditing
- Accounting
- Treasury
1. Commercial Banking
Commercial banking offers a broad range of financial services like checking accounts, saving accounts, and loan facilities to individuals and businesses. The retail banking sector’s popular positions are credit analyst, loan officer, bank teller, mortgage banker, branch manager, and trust officer. Commercial banks create room for growth as workers take up higher roles with decent pay packages.
Positions available in commercial banking:
Credit Analyst
A credit analyst assesses companies and individuals’ financial data and statements to ascertain if they’ll be able to fulfill their financial obligations when offered loan services.
Loan Officer
A loan officer refers to a specialist or representative of the financial institution that inspects, approves, and recommends individuals’ loans. Loan officers are well acquainted with the different types of loans, so they advise loan applicants on the type of loan to go for and their eligibility.
Bank Teller
Also known as a bank cashier or customer representative, a bank teller controls financial transactions such as deposits, cash transfers, and withdrawals. Bank tellers also issue cheques and money orders, collect payments and promote some of the bank’s products like mortgages or particular savings account. They may also be assigned to count the cash, do paperwork, resolve customer issues, and balance vaults.
Mortgage Banker
A mortgage banker is a person or entity that promotes mortgages. The individual invests in mortgages by funding or borrowing funds from a loan originator. Like a loan adviser, a mortgage banker helps the borrower and loan applicants make the right choice of loan options. The mortgage banker may choose to sell or retain the mortgage after it has been originated. They liaise with realtors and people seeking loans through the mortgage procedures.
Trust Officer
A Trust officer or trust administrator is a bank professional who offers expertise and act as an advisor on trust and estate matters. The job duties include communication with clients, calculating disbursements, handle business accounts, among others. Trust officers are also concerned with administrative duties. They must guarantee that all accounts comply with the banking requirements of the state and federal sectors.
2. Corporate Finance
Corporate finance focuses on the management of a company’s financial activities. This deals with the raising of funds and channeling of these funds to maximize profitability for the company.
Corporate finance includes the following:
- Risk management and tax considerations
- Analysis of capital budget
- Public issuance of stock and stock exchange listing
- Stock acquisition and investment in assets
- Pinpointing essential objectives, opportunities, and limitations
- Recognizing sources of funds
- Using standard business valuation processes.
- Controlling unallocated profits for distribution among shareholders and future investment
- Common openings in corporate finance include treasurer, financial analyst, chief financial officer, tax manager, internal auditor, and others.
Let’s consider each of these roles:
Treasurer
The finance expert supervises every aspect of financial management by working concertedly with other members to evaluate and monitor its funds. Treasurers facilitate fundraising, budgeting, book-keeping, and financial reporting.
Financial Analyst
Financial analysts assess and analyze financial data so businesses can pinpoint opportunities and make better decisions. A financial analyst’s duties include financial forecasting, analyzing and translating data, creating automated reporting instruments, and others.
Chief Financial Officer
Similar to a treasurer, the chief financial officer oversees the financial activities of a company. The CFO has an immense role in the overall success of an organization. A CFO is a highest-ranking position in the financial industry. They often work closely with the Chief Executive Officer (CEO) to execute the company’s strategic initiatives. The CFO’s duties encompass the monitoring of cash flow, overseeing all finance personnel, evaluating the company’s strengths (investments) and weaknesses (liabilities), thus proffering solutions.
Tax Manager
Tax managers are majorly concerned with preparing and developing business tax strategies in strict adherence to federal/law tax laws and policies. Though a tax manager’s duties vary based on the size of the organization and business location, a tax manager performs tax documentation, implements solutions to tax problems, and provides a wide range of tax services that comply with laws and regulations.
3. Personal Banking
Personal banking deals with the financial decisions of an individual, also relative to savings and investments. These decisions may encompass budgeting, monetary resources, among others.
Personal finance includes the following:
- Tax Management
- Retirement Plans
- Wealth Generation
- Long Term Expenditure or Purchase
- Loan or Debt Payment
- Investment Goals
4. Investment Banking
This is a top financial career in the industry. Investment banking deals with brokering primary transactions, merging, and issuance of securities like stocks, equities, and bonds for purchase by investors in the marketplace. Investment banks help raise capital for corporations, governments, and institutions. An investment banking career is quite competitive, requiring the mastery of financial skills with excellent negotiation skills and confidence. There are many divisions that an investment banker can work in. They can work as a qualitative research analyst, trading securities in the market.
Qualitative Research Analyst
Qualitative research analysts are trained individuals who handle securities and assets. They’re often called investment or securities analysts. Research analysts make inquiries, analyze and review policies, facts, and theories that concern financial institutions. After conducting research, the research analyst reports the public records of companies’ securities, also recommending the “buy,” “sell,” or “hold” policy.
5. Insurance
Insurance safeguards individuals and businesses from potential risks and circumstances. Popular roles in insurance include insurance sales representative, customer service specialist or, actualist calculating risks and standard rate based on the probabilities gathered from financial trends.
Insurance Sales Representative
An insurance sales representative promotes insurance policies and makes contact with potential clients to meet their insurance needs. He or she recommends insurance policies to clients and initiate effective marketing strategies to boost insurance sale. Insurance sales representatives collect data from clients on their policy needs, report to shareholders on business strategies, and create awareness of sales and transactions.
Customer Service Specialist
Insurance customer service specialist provides clients with information about the insurance company’s products and services. They resolve customers’ complaints, respond to inquiries, attend to correspondences and record customer interactions. They recommend new products and services to clients and work with other departments to provide support to clients.
Actualist
Actualist regulates financial risks associated with an investment, insurance, and other ventures. Many public, private, investment and insurance companies employ the services of actuaries. As a business, most insurance companies want to operate low-risk policies. Though many of their policies revolve around life expectancy, they also offer policies on property and liability.
6. Equity Research
Another top career in finance is equity research. Equity research deals with the in-depth analysis of a company’s stock, valuation, and financial modeling. An equity research analyst helps investors make crucial financial decisions, most especially in investment. The analyst suggests the investment to buy, hold or sell to investors. They also make research reports and projections. To excel in this field, you’ll need to have a great deal of patience and an increased ethical values level.
7. Wealth Management
Relative to investment banking, wealth management focuses on providing financial services to affluent and less wealthy people. Wealth management is simply defined as money management. Wealth managers earn money by charging fees for services rendered. In wealth management, clients can operate a brokerage account with access to tax planning, estate, and retirement plan.
8. Mortgages/Lending
A mortgage is an act of offering loan services to individuals who want to buy a house or property. The borrower gets to repay the loan with interest over the years till he or she gains ownership of the property. Mortgage brokers pose as middlemen between financial institutions and potential homeowners. Clients are offered loan options from numerous lenders. The clients compare loans and draw out financial and employment details from buyers. Mortgage brokers guide clients on their loan options and ensure the process conforms to rules and regulations.
9. Auditing
Auditing refers to the inspection, evaluation, review, and financial analysis to draw out financial statements. This financial system helps in the management of funds, reduces cost, increases earnings and business decision-making. It checks that individuals and companies comply with tax codes and financial policies. Auditors can work in the government sector, financial organizations, and universities. There are different types of auditors: internal auditor, external auditor, government auditor, and forensic auditor.
Internal Auditor
An internal auditor is a trained person who independently assesses a company’s operations or internal control system. Internal auditors collate data and information about the financial activities of the organization. They pinpoint problems and take corrective measures before an external auditor discovers the irregularities and issues. These auditors gather, evaluate and check all company records to ensure they comply with the set down rules and regulations. They may perform valuation to decrease management costs, maximize resources and limit risk. Upon completing the audit, the internal auditor will submit a final report to the senior executives for recommendations.
External Auditor
External auditors usually work for external audit firms. They conduct audits following certain rules and regulations. External audits are often conducted once a year whereby the auditor present an independent report with an objective opinion. The external auditor may make inquiries from the internal auditor without having their reports influenced by them. He or she may need to work closely with other departments if he’s conducting audits on the departments.
Government Auditors
Government auditors analyze and scrutinize financial records of government agencies, private companies, and businesses subjected to government regulations and taxation. These auditors ensure that revenues are spent appropriately and efficiently based on the given laws and rules. They detect fraudulent activities, analyze financial records, examine reports, review internal controls, etc.
Forensic Auditor
Forensic auditors are specialized in crimes and mostly work with law enforcement agencies. Though forensic audit and external audit seem alike, a forensic audit is more specific and is usually conducted as part of the legal process. In cases of embezzlement or fraud, the audit reports are often presented as evidence. Forensic auditors can tell when there’s a fraud, investigate the period and how it was carried out. They gather tangible evidence that supports their report, which will also be presented in court. As experts, they recommend precautionary measures for fraud. To become a forensic auditor, individuals must have a vast knowledge of the law, accounting, machine learning, investigative auditing, criminology, data analytics, and computer science.
10. Accounting
Accounting entails budgeting, daily financial reporting, and data analysis for the growth of any company. Accounting professionals can work as financial managers, auditors, financial accountants, and management accountants.
Financial Managers
Financial managers oversee the finances of an organization. They work alongside executives in decision-making for the benefit of the company. Financial managers analyze data, produce financial reports, monitor financial trends and opportunities that will maximize profits. A financial manager should have a broad knowledge of tax laws, regulations and topics centered on their field. Healthcare financial managers are expected to be knowledgeable about healthcare finance. Financial managers can work in both the public and private sectors. Their services may be required in multinational companies, universities, manufacturing industries, among others.
Financial Accountants
A Financial accountant monitors the company’s financial activities, be it corporate, public, or private. They collect data, prepare monthly reports, and forecast future projections. Furthermore, they give comprehensive financial statements and information to various departments for budgeting and investment purposes.
Management Accountants
Also referred to as corporate accountants, management accountants are the key determinant of a successful company. They carry out a series of tasks like risk management, managing the company’s investment, handling taxes, long and short-term planning. They also analyze to make budgeting plans and forecast future needs before presenting to the top managers for prompt decision-making. To be successful as a management accountant, the individual will need to be good in numbers, math, and business methods.
11. Treasury
Treasury deals with the financial capabilities of any company for the successful and smooth running of the business. It gives a definite future prediction and forecasts the needed funds for the company. Treasury professionals have diversified career opportunities they can delve into. They can work in large or small organizations across the globe. Regardless of the sector, these professionals can work anywhere.
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