April 19, 2024

Business Bib

Business & Finance Blog

The Primary Areas of Business Finance

3 min read

Obviously, finance is one of the cardinal functional areas of business, without which no business can thrive. It permeates through other key functional areas of business such as marketing, operations, technology, and management, to ascertain that businesses deliver results. There are 3 major areas of business finance, and the aim of this article is to help you understand these three areas and their functions.

Although there may be some overlaps here and there, the three areas of business finance are: Corporate Finance, Investments, and Financial Markets and Institutions. Now, brace yourself and read on as we unveil some of the things you should know about each of these primary areas of business finance:

Corporate Finance

Of the three areas of business finance, corporate finance deals with the area of finance that has to do with the actions of the company concerning financing decisions. This has to do with company purchases and how they fulfill the payments. For example, when a business owner or company buys production equipment, the company takes the necessary actions required to pay for the purchase. Some of areas often covered by corporate finance include; working capital, budgeting, financial analysis, and financial statement development, among others. These finances are often dealt with a business account with a known bank. For example, corporations can open a Revolut business account or a corporate account with Bank of America since these specific account types have features and benefits that are created especially for businesses and companies.

Investments

The second area of finance we are going to discuss is investments. It is common to see businesses, especially the large ones, investing in external assets such as stocks and bonds. This shows that businesses are also investing. The investment may be for short-term or long-term securities, but the purpose is to earn additional returns outside of what the business brings. Aside from stocks and bonds, businesses also invest in physical assets like real estate and equipment.

Financial Markets and Institutions

The last area of business finance is the financial markets and financial institutions. As you may have noticed already, this aspect is in two folds: financial markets and financial institutions. The financial markets aspect has to do with everything ranging from the stock and bond markets to the primary and second markets, as well as the money and capital markets.

For the financial markets like the stock market, its purpose is to help ease the transfer of funds between funds savers and funds users. In most instances, savers are households, while users are usually businesses and the government. For example, with stock market, exchange of ownership of a company between one person or business and another can easily be done without much hassle.

However, financial markets do not function in isolation. They work hand in hand with financial institutions. Basically, the role of financial institutions is to act as the intermediaries. By so doing (working as a broker or agent for the trade), financial institutions help to make transfers of funds between businesses and savers easier and convenient. This is the case when an individual deposits money into a savings account, and the bank in turn, loan the money out to businesses looking for credit financing.

Basically, this discussion about the three primary areas of business finance provides us with insights into the finance world and how companies leverage the different financial instruments to establish and grow their businesses.

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