What Is The Difference Between Business Finance?
Business finance is a broad term encompassing many things regarding the study, development, management, and allocation of capital and funds. The discipline of business finance has become progressively more important over time with the evolution of organizations, the development of markets, and the need to manage risk. Business finance theory postulates that firms should undertake activities aimed at achieving two main goals: one, increase their value by generating competitive advantages in the marketplace; and two, build sources of long-term sustainable wealth by using financial assets and funds efficiently. The goal of all firms, therefore, is to achieve long-term viability by building and sustaining organizational capital above the cash and equity requirements. A key concept in business finance is the theory that firms should be operated for the benefit of all the stakeholders.
In addition to this, business finance studies also consider various aspects of the finance system such as: money management, the impact of shocks to investment, banking regulation, financial markets, fiscal policy, and international trade. All of these areas are intensely interrelated and, even though money management is considered by most experts to be a simple and straightforward concept, it can have a tremendous impact on the entire system. In fact, money management is one of the most important aspects of business finance. Poor money management can result in short-term setbacks, but more severe problems can arise in the long run when excessive leverage is applied to already-established companies or industries.
One final area of business finance is risk management, which basically means that firms will need to assess the amount of risk they are likely to encounter during a given year. Much money is lost when businesses decide against taking an investment option because they foresee higher losses in the future. There is a need for firms to evaluate not only the expected short-term business costs but also the potential long-term business benefits. For example, an alternative investment strategy may not make much money if the anticipated growth rate is only 2%, but a plan that takes into account the likely rise in the market share price is more likely to generate profit because companies will be making money on a more even basis.