Information > Financial Terms > This page

Finance 
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)      

This term has three meanings:

1. To raise money necessary to organize, reorganize, or extend an enterprise, whether by the sale of stocks, bonds, or notes or otherwise.

2. The theory and practice of monetary credit, banking, and promotion operations in the most comprehensive sense.  It includes money, credit, banking, securities, investment, speculation, foreign exchange, promotion, reorganization, underwriting, brokerage, trusts, etc.

3. Originally, the raising of money by taxes or bond issues and the administration of revenues and expenditures by a government.

This is now known as PUBLIC FINANCE.

Finance is the science of managing money and is closely related to both economics and accounting.  Economics provides an understanding of the institutional structures in which money and credit flow (macroeconomics) and the profit maximazation guidelines associated with the theory of the firm (microeconomics).  Accounting provides the source of financial and other data for financial management.

Financial theory deals primarily with the accumulation and allocation of economic resources in relation to time and under varied states of the world.  Finance also attempts to explain how money and capital markets facilitate the allocation of resources.  Finance is concerned with the valuation of the firm as a going concern and investment opportunities and with factors that can change these values.  It deals with the acquisition and use of funds, including their impact on the profitability and growth of the firm.  Financial theory is applicable to nonprofit entities as well as for-profit enterprises.

The functions of a financial manager are financial analysis and planning, the management of the firm's asset structure, and the management of its financial structure.  A firm's asset structure refers to both the mix and type of assets reported on the firm's balance sheet.  Financial structure refers to the appropriate mix of short-term and long-term financing, including both debt and equity financing.  The goal of financial management is to achieve the objectives of the firm's owners, which is sometimes considered to be the maximization of profit or wealth.  The maximization of profit and wealth turn on the investment, a short-run and a long-run viewpoint, the timing of benefits, risks, and the distribution of returns.

BIBLIOGRAPHY

PRINGLE, J. AND HARRIS, R.J.  Essentials of Managerial Finance, 1984.

Finance periodicals:

Handbooks and Manuals:

Altman, E.I. Financial Handbook.  John Wiley and Sons, New York, NY, 1987.  Downes, J., and Goodman, J.E.  Barron's Finance and Investment Handbook.  Barron's Educational Services, Inc., Woodbury, NY, 1987.

FABOZZI, F.J., and ZARB, F.G.  Handbook of Financial Market-Securities Options, Futures.  Dow Jones_Irwin, Inc., Homewood, IL, 1987.

RAO, D.  Handbook of Business, Finance, and Capital Sources, AMACOM, New York, 1985.

Journals:

Other publications:

BEL AIR, R.  How To Borrow Only Money From A Banker.  AMACOM, New York, NY, 1988.

BREALEY, R., and MYSERS, S.  Principles of Corporate Finance, McGraw-Hill Book Co., Inc., New York, NY, 1988.

BRIGHAM, E., and GAPENSKI, L.  Intermediate Financial Management, Dryden Press, Hinsdale, IL, 1985.

BUTLER, R.E., and RAPPAPORT, D.  A Complete Guide to Money and Your Business.  Prentice Hall, Inc., Englewood Cliffs, NJ, 1986.

FAMA, E.  "Banking in a Theory of Finance."  Journal of Monetary Economics, January, 1980.

"What's Different About Banks?"  Journal of Monetary Economics, January, 1985.

GUERARD, J. and VAUGHT, H.T.  The Handbook of Financial Modeling.  Probus Publishing Co., New York, NY, 1989.

WOELFEL, C.J.  The Desktop Encyclopedia of Corporate Finance and Accounting.  Probus Publishing Co., Chicago, IL, 1987.

Back to Information