Meaning of Finance: Its Objectives and Scope

Introduction to Finance as a Subject

Finance as a subject deals with money matters. It helps plan the financial growth of institutions and economies. It examines the creation and circulation of money and its efficient management. It studies the financial conditions of a country, region, business entity, or even individuals. It examines how people and countries behave in financial matters, including how they collect and create funds and make financial decisions. Based on such scientific studies, it formulates principles and provides guidelines for solving financial problems and helps create and maximize funds through efficient management. It includes the management of money, funds, and capital.

Objectives of Finance

Here are the two important objectives of finance: Profit Maximization and Wealth Maximization

1) How to Manage Money Efficiently

This is aimed at profit maximization. 

Any financier who invests his funds in business aims at maximising the returns on the money invested. So efficient management of money is necessary to earn profits. This goal is achieved through proper planning, streamlining available resources, and eliminating waste and unnecessary expenditure.

2) How to Create and Arrange Funds

This is aimed at wealth creation and wealth maximization. 

If it is public finance, you are concerned with accumulating money and providing funds for the various projects and activities of a country. 

If it is a business entity, the finance personnel are concerned with creating funds through profit maximization as well as efficient control of money by locating wastages. 

They are further concerned with various options available for creating funds like debt management, loan financing, share dealings, etc.

We shall discuss these functions in detail later on.

Scope of Finance

Finance plays an important role in almost every field of public and private activities. So its scope is much broader than initially purported to be. We can assess the scope of finance in two distinct ways.

1) One is based on the nature of organisations or institutions it deals with: public or government, corporate, private, institutional, personal and international types.

2) The other is based on the nature of functions. Modern financial activities are directly linked with many functional departments like public administration, personnel, marketing, accounting, and production.

Let us have a look at these horizons of finance.

1. Public Finance

Public finance is associated with the study of government spending- the way they raise large amounts of funds and spend them through planned budgets for different schemes. Public spending is different from corporate and institutional spending as it is not profit-oriented. It concentrates only on raising funds and spending them prudently for public welfare works through efficient management. The finance departments of central and state governments, with their Finance Ministers and staff, fall under this scope.

2. Corporate/ Business Finance

Corporate Finance and Business Finance deal with the capital structure and activities of various business establishments and corporate bodies. Here, all activities are profit-oriented. So financial decisions and activities are aimed at profit maximization. It is concerned with how to invest, save money, and increase profits through efficient financial management. All business firms and corporations appoint Finance Managers for this function.

3. Institutional Finance

Institutional finance deals with some public service-oriented institutions that also work for profit, like Banks, Insurance Companies, educational institutions, etc. They deal in savings and capital formation by way of serving the public.

4. Personal Finance

Personal finance is concerned with the individual financial activities of people. Preparation of personal budgets, providing guidelines for saving and spending, financing of loans, etc are studied here.

5. International Finance

International finance deals with international activities of finance. Financial transactions between nations, matters related to compliance with international financial laws and regulations are covered in this area. It also deals with the transactions between individuals and corporate bodies that have multinational and international activities with regard to the flow of money and financial problems across international markets.

Further, based on the activities of functional departments, the purview of finance includes the following branches of study:

1. Finance and Accounts

2. Finance and Costs

3. Finance and Economics

4. Production Finance

5. Marketing Finance

6. Personnel Finance

We may discuss these things in later chapters.