Studies in Finance Sector - Essay Example

Peiyao Wen William Boozang ENG 1004 05/11 Finance Introduction Studies in Finance involves coming across a widerange of terms which are used in that field. It will introduce you to the way individuals and firms, organizations and businesses raise money and allocate it to various tasks that have been evaluated and emerged as the right ones to venture in. It also analyzes the monetary resources allocation over time and looks at the risks that are involved in venturing into various business ideas that are aimed at raising the financial status of the organization. Study of money and all other assets in a business or organization and their management is incorporated in the financial studies all incorporated in your Finance Major degree. There are a number of objectives that a Finance Major student aims at and later achieves in the accomplishment of their course. First, they should have a deep understanding in financial management which will help them in value creation and maximization within the business or organization. They should also be able to make strong decisions based strongly on their ability to integrate the economic, market and financial information gathered before making the decision. They should also have skills in financial management and have deep knowledge of the domestic and global financial markets and firms. The paper will address some of the aspects learnt in finance and which are vital to students learning finance. Financial Management In order to accomplish the objectives and the goals that have been set by any organization it is important to have an efficient and effective way of managing the funds that are available. Capital and money are scarce factors of production and this calls for the best financial management skills to allocate them in a manner that will ensure that the best results are achieved. The main aim of any business venture or organization is to allocate the factors of production then using management skills allocate them to achieve the set targets. Financial management entails a number of processes which are synchronized to deliver the required output or returns (Khan & Jain, 2007). There are two areas in financial management that are important to ensure that the organization is running and the company/organization is competing in a healthy manner with other organizations. These are managerial finance and corporate finance. Corporate Finance This an important area in financial management that is responsible for handling the organizations’ funding sources and evaluating the capital structures erected in comparison with the set objectives. It also involves the analyses and evaluation of actions that need to be taken so as to improve on the organizations image to the public (Khan & Jain, 2007). The organization’s image is important as it can be used to lure shareholders and the public to invest in the company’s stock and increase its revenues and valuation. Capital budgeting is an important field in corporate finance as will be discussed under the budgeting part later in the essay. Investment banking which is another field under corporate finance deals with the evaluation of the organization’s financial obligations and needs and the raising of the capital that will effectively address the needs. In short to understand the concept of corporate finance well it is better to look at it in terms of creating, developing and growing of the business/organization using the available funds or scarce resources. Managerial Finance Unlike corporate finance, managerial finance mainly deals with the assessment of the organization’s financial status in comparison with other organizations and establishing whether the set goals are being achieved. An organization needs to produce quarterly, half annually and annual reports of its performance so that shareholders and the public can be able to establish whether it’s a good one to invest in or not. The financial trend of a company is also established by managerial accountants (Khan & Jain, 2007). Managerial finance borrows heavily from corporate finance and also from managerial accounting. The interpretation of the financial results at the end of a financial period is done by financial accounting experts. With technology, financial analysis has been simplified. There are soft-wares that are able to establish the organization’s financial trend and also compare it with its competitors. This has greatly changed the field of financial management and made it easier unlike in the past when one had to do all that work with limited information or manual collection of data for comparison (Khan & Jain, 2007). Budgeting as a Tool in Financial management All financial expeditions require a budget that will show how the money will be put into various tasks for better planning and for future use. A budget is that quantitative expression of plan for the financial resources that is bound to cover a certain period of time. A budget expresses the plans laid strategically for businesses, organizations events and also for individual persons. This means that is will express the strategic plans for all of the above. Before looking at the various types of budgets that exist, it is important to know the purpose of the budget. First a good budget will help the organization, person or government to control its financial resources in a manner that is planned and also ensure that the same budget can be used to evaluate whether the laid plans have been achieved or not. This will help in drafting a better budget or adjusting in a manner that will improve the performance of the stakeholders involved in the business or maybe a government. A budget is also used to communicate or make it easy to pass the set goals to the different responsible leaders in any organizations as they are the ones bestowed with the mandate of ensuring that the budget is actualized. In an organization this means that the center managers are the ones who will be given the mandate to ensure that the budget is put into actual plans and in case of a government, the various ministers or cabinet secretaries will ensure that the budget is put into actual plans. A budget is very important in motivating the leaders in an organization together with the junior staff to work hard and strive to achieve the goals set. Any organization will have its list of set goals and to ensure that the workers have the morale to achieve them, a budget is drafted and then set to be actualized (Stouffer, 2012). The performance of managers and the junior staff in an organization can be evaluated by looking at how they worked towards achieving the set goals. A budget also helps to enhance accountability within the firm and provide visibility while looking at its performance. Where Budgets are used There are various types of budgets specifically drafted to suit various environments. However, the purpose of any budget still remains to be among the ones given earlier. Government Budget: This is plan of the revenues intended and the expenditures within a given period of time. Many governments draft yearly budgets which are used to manage their income and direct it to the various national projects that are important. A government cannot run without a budget as the resources being handled are massive. This makes it increasingly important to have a budget to follow so that cases of corruption and mismanagement of government resources are gotten rid of. In managing the resources, the governments use current, investment and cash flow budgets. Event Management Budget: This an essential tool to any event manager. It is drafted to evaluate and predict with precision whether a given event will be profitable or it will lead into a loss. Without the budget, the probability that the whole expedition will run into a loss are higher. This involves use of mathematical models to establish the facts basing on the factors that are involved. Personal Budget: A personal budget is used to show all the sources of income and how one has been using the financial resources. A personal budget is very important in curbing impulse buying especially when one has money. Drafting a budget before getting the money will ensure that it is put into the right usage once it is debited (Jenkins, 2008). Corporate Budget: A company may need to have a budget to show how it is expecting or planning to use its funds in a given period. Companies and organizations usually draft annual budgets which they then work to achieve. The goals set are based on the budget that the company is operating on. Quarterly and annual reports made by a company helps to know whether the set goals based on the budget are being actualized. Start-up Budget: When starting a business it is important to draw a budget based on the resources that you have and how you want to use them to ensure that your business prospers. Since resources are always scarce, it is important to allocate them in such a way that the maximum profit can be got from them. This involves analyzing the available business opportunities and then venturing in the one that will give the best value for the money invested. Types of Budgets Different types of budgets exist according to the way that they are used. Sales budget is used to estimate the future sales. It is important in setting the company’s goals and objectives. The managers have the obligation to ensure that the junior staff are aware of the goals set by the company. This ensures that they are achieved with ease. A production budget is used to make an estimate of the exact number of units that should be produced to meet the sales goals. The cost involved in the production process are also involved in drawing a production budget. A capital budget is used to establish whether the company’s fixed assets which include machinery and plants are worth following. A project budget makes a prediction of the costs which are to be incurred in the installation and accomplishment of a certain project. It can also be drawn to show the costs of all the projects in the company. A revenue budget is the one that shows the money got from revenues and the projects that it has been put into. Conclusion The success of any given company or government is determined by the plans that are put underway and how they are followed to ensure that the goals that have been set are achieved. This makes it important to draw budgets to ensure that the available resources are put into the right use and therefore maximizing the prospects of the company towards making a bigger profit which is their goal. Governments need to establish the amount of income they are getting from various sources which include revenues and grants. Consequently this money needs to be put into national projects to ensure that the country is appreciating in terms of development (Financial Planning Curriculum Framework, 2011). Without using a budget this would be practically impossible. Cases of corruption would dominate as there would be no trace of the income that was generated neither would there be any evidence of what projects were erected with the money. To avoid all these it is important to draw a precise budget and follow it to the core. As it has been seen in this paper, the value of a budget in handling any amount of money cannot be under estimated. Studying finance introduces a students to the concepts of handling money and how to draw budgets that are logic and achievable. Since in some situations like in drawing government budgets it involves working with speculative value, understanding the prevailing circumstances is very important. This ensures that the values that are projected lies between the limits that can be attained so that the government is not misled and end up in debts. Cited Works Financial Planning Curriculum Framework. Financial Planning Standards Board, 2011. Print. Jenkins, Richards. A Simpler Way to Save: 60% Solution, 2008. Retrieved February, 2014. Print. Stouffer, Tere. The Only Budgeting Book you will ever need: How to Save Money and Manage Your Finances with a Personal Budget Plan that Works for You. Adams Media Corporation, 2012. Print. Khan & Jain. Financial Management. New York: Tata McGraw-Hill Education, 2007. Print. Read More