The Primary Areas of Business Finance
Let’ Start Business owners and managers should have a basic understanding of business finances even if they outsource certain areas of their financial operations. Becoming familiar with the basics of business finance can give an owner some additional tools to help understand the financial complexities of business ownership. The three major areas of business finance are corporate finance, investments, and financial markets and institutions.
Corporate Finance Corporate finance is a broad description of a company's balances, income, and cash flow information. This information is used to create measurements to gauge their financial performance. Performance is measured by developing metrics such as the current ratio—the ability to pay your financial obligations on time. The balance, income, and cash flows statements are generated for accounting purposes. These statements are required for companies that are publicly traded—they have issued stocks to investors on a public trading market—but can be useful for private businesses of all sizes as well.
Investments
Another area of finance is investments. Businesses may invest in assets ranging from short-term securities to long-term securities like stocks and bonds. Companies can invest in financial assets such as stocks of other firms, or invest in themselves with physical assets such as buildings or new equipment.
Financial Markets and Institutions Financial markets include the stocks and bonds, commodities, and derivatives markets. Financial markets, such as the stock market, help facilitate the transfer of funds between savers of funds and users of funds. Savers are usually households, and users are generally businesses and the government. Commodities markets are markets in which traders and investors trade for volatile commodities—prices rise and fall rapidly— such as oil or milk.
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