Definition of Finance

What is Finance?

In relation to capital structure, finance can be defined as the process of raising money or capital to meet certain types of expenditure. For example, finance in government may include tax revenue and debt used to fund development projects. In a company, finance involves raising funds from sources such as equity, bank loans, and retained profits to fund business operations and investments.

Business people, government departments, organizations and consumers are not always endowed with enough resources to meet their expenditure, pay debts and complete other transactions. There are also savers and investors accumulate their funds in interest-earning deposits, shares, shares, or insurance claims.

Finance is the process of channeling these funds through loans, equity capital, or credit to economic entities or companies that need them and can put them into productive use. The institutions that facilitate this process of financing various entities are referred to as financial intermediaries. They connect borrowers with lenders to ensure that funds are channeled to areas that need them the most.

The three broad areas of finance are:

  • Personal Finance: concerned with how individuals acquire and use funds through personal savings, expenditure and investment.
  • Business Finance: concerned with how companies or business entities acquire and spend money for various business operations and investments.
  • Public Finance: This covers government spending and other ways in which governments manage public funds raised though taxation, internal borrowing, and external borrowing.

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