Learn Finance

Objective of Finance:

The principal objectives of finance are to earn adequate profit, Conservation and efficient utilization of investible capital.

1) Raising of capital: The main focus is that excess funds do not remain idle and shortage of funds does not create bottlenecks in the way of running the business.

2) Investment of capital: To invest the capital raised in appropriate times, right places and proper sequence.

3) Protection of capital: Uncertainty always prevails in the business world. If investment is made unwisely and unprudently, it may bring disaster to the business unit. So, the risk of loss and protection of capital must be given due consideration.

4) Minimization of cost: A firm can issue bonds instead of stock. Bonds are more risky than stock and bonds cost less than stock.The firm accepts the risk of borrowing in exchange for a lower cost of funds.

5) Maximization of profit: Corporations commonly measure profits in terms of earnings per share.

6) Maximization of wealth: The wealth of corporate owners is measured by the share price of the stock, which in turn is based on the timing of returns, magnitude and risk.

7) Maintain firm value: The optimum capital structure exists and the value of the firm is maintained constantly.

Definition of Finance:

Finance is the activity of planning, raising, investing, managing, protecting, controlling, and acquiring the financial assets of individuals, businesses, and governments.

L.J. Gitman says, Finance is the art and science of managing money affects the lives of every person and every organisation.

Evolution of Finance:

Gradually money captured widely in the society the medium of exchange, price measurement and also standard of transaction. At the end of 19th century, finance became a separate subject due to spread economic activists, money circulation, control and policies of money.
The evolution of finance is discussed below:

Origin decade of finance (1890-1900): The journey of finance was started at the end of 19th century. In 1897, the famous economist Thomas L. Green wrote a book called "Corporation Finance". At the same decade the famous writer E.S.Mid Arthur, Stone Viewing and William Dedecisol developed books based on finance. During 1890-1900 of merger process companies started in USA.

Decade of protection to investors interest (1900-1910): In this decade, protecting the attention to investors' interest was considered and government control rises. Liquidity protection of business, principle of cash, bill payment and financial report etc, and financial information were published and maintained. As a result, business finance was being speeded out very fast.

Decade of technology and industrial revolution (1910-1920): In this decade, prime technology invention and the success of Henry Ford in 1913, huge production process was started and discovered a complete industry. Edman. llicons, W.G. wrote improved book on finance.

Decade of computer and analysis (1920-1930): In this time, using of computer makes it so fast for the betterment of financing progress. By using computer to collect complicated information, analysis, research and taking decision become easy.

Decade of depression and recovery (1930-1940): In 1929, falling in share market made the situation depressed later in the decade. For this reason, loan was arranged in finance but loan refund and protection of liquidity become cases of problems. In financial activists, capital planning system has been added because of replacement of organisation and for keeping it protected.

Old era of evolution (1940-1950): In this time, capital budgeting and other important subjects were added in finance. Financial decision added and eradicating related short comings.

Modern era of finance (1950-1960): In this decade, assessment model was developed. In 1952, "Henry Markowitz" developed portfolio theory. William F. Sharpe, John Linter and Michael C. Jensen have developed the theory based on "Markowitz's Theory". In 1958 and 1961, Franco Modigliani and Merton H. Miller gave MM model on the basis of dividend policy which is prevailing today. For the assessment, dividend and capital structure theories were prevailed.

Expansion and growth (1960-Present): In this decade, William F. Sharp has developed portfolio theory further and developed Capital Asset Pricing Model (CAPM). In 1970, Black and Scholes developed a famous Option Model. In 1980, these evaluation models are widely used in business firms. For evaluating this model, then in 1974 Arbitrage Pricing Theory is discovered.

Evolution of finance is becoming an important matter of fact gradually. With the changing of time, several theories and models have helped financial activists. As a result, users of finance can challenge the global age by taking decisions at any changing situation.

Introduction:

The field of finance is broad and dynamic. Finance is the process of raising funds or capital and its proper utilization.It directly affects the lives of every person and every organisation.
Aurora is generally considered the father of finance. On the other hand, Eugene F. Fama is considered the father of modern finance. He is known for his "efficient market hypothesis" and other important financial research.