What does finance means?

Before we begin, first lets understand the origin of word FINANCE.

If we trace the origin of finance, there is evidence to prove that it is as old as human life on earth. The word
finance was originally a French word. In the 18th century, it was adapted by English speaking communities to
mean the management of money. Since then, it has found a permanent place in the English dictionary. Today,
finance is not merely a word else has emerged into an academic discipline of greater significance. Finance is now
organized as a branch of Economics.

Furthermore, the one word which can easily replace finance is EXCHANGE." Finance is nothing but an exchange
of available resources. Finance is not restricted only to the exchange and/or management of money. A barter
trading system is also a type of finance. Thus, we can say, Finance is an art of managing various available
resources like money, assets, investments, securities, etc.

At present, we cannot imagine a world without Finance. In other words, Finance is the soul of our economic
activities. To perform any economic activity, we need certain resources, which are to be pooled in terms of money
(i.e. in the form of currency notes, other valuables, etc.). Finance is a prerequisite for obtaining physical resources,
which are needed to perform productive activities and carrying business operations such as sales, pay
compensations, reserve for contingencies (unascertained liabilities) and so on.

Hence, Finance has now become an organic function and inseparable part of our day-to-day lives. Today, it has
become a word which we often encounter on our daily basis.

1. Investment Opportunities

In Finance, Investment can be explained as a utilisation of money for profit or returns.

Investment can be done by:-

1.Creating physical assets with the money (such as development of land, acquiring commercial assets, etc.),

2.Carrying on business activities (like manufacturing, trading, etc.), and

3.Acquiring financial securities (such as shares, bonds, units of mutual funds, etc.).

Investment opportunities are commitments of monetary resources at different times with an expectation of
economic returns in the future.

2. Profitable Opportunities

In Finance, Profitable opportunities are considered as an important aspiration (goal).

Profitable opportunities signify that the firm must utilize its available resources most efficiently under the
conditions of cut-throat competitive markets.

Profitable opportunities shall be a vision. It shall not result in short-term profits at the expense of long-term gains.

For example, business carried on with non-compliance of law, unethical ways of acquiring the business, etc.,
usually may result in huge short-term profits but may also hinder the smooth possibility of long-term gains and
survival of business in the future.
3. Optimal Mix of Funds

Finance is concerned with the best optimal mix of funds in order to obtain the desired and determined results
respectively.

Primarily, funds are of two types, namely,

Owned funds (Promoter Contribution, Equity shares, etc.), and

Borrowed funds (Bank Loan, Bank overdraft, Debentures, etc).

The composition of funds should be such that it shall not result in loss of profits to the Entrepreneurs (Promoters)
and must recover the cost of business units effectively and efficiently.

4. System of Internal Controls

Finance is concerned with internal controls maintained in the organisation or workplace.

Internal controls are set of rules and regulations framed at the inception stage of the organisation, and they are
altered as per the requirement of its business.

However, these rules and regulations are monitored at various intervals to accomplish the same which have been
consistently followed.

5. Future Decision Making

Finance is concerned with the future decision of the organisation.

A "Good Finance is an indicator of growth and good returns. This is possible only with the good analytical
decision of the organisation. However, the decision shall be framed by giving more emphasis on the present and
future perspective (economic conditions) respectively.