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[What is Finance]

Finance is the application of the principles of financial economics to an interrelated set of monetary problems. In the case of a company, this generally involves balancing risk and profitability and is typically called managerial finance or corporate finance. Investment theory is concerned with the identification of an optimal portfolio of assets, given a set of objectives and constraints, as well as with the valuation of assets. Finance can also be used by individuals (called personal finance), and by governments (called public finance).

Finance involves:

Investment management and valuation
-Financial markets, financial instruments, and financial institutions
-The risk-return framework and the identification of the asset appropriate discount rate
-Valuation of assets - discounting of relevant cash flows; relative valuation; contingent claim valuation
-The optimum allocation of funds - What to invest in - How much to invest - When to invest

Corporate and Managerial finance
-Cash flow budgeting and working capital management
-Comparing alternative proposals
-Forecasting and risk analysis
-Obtaining funds - debt or equity sources - long term or short term - optimum capital structure
-Allocation of funds to long term capital investments, vs optimize short term cash flow
-Dividend policy

Wealth management and personal finance
-How much money will be needed by an individual (or a family) at various points in the future?
-How is that need to be funded?

Public finance
-Identification of required expenditure of a public sector entity
-Source(s) of that entity's revenue
-The budgeting process

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