Why study finance?

Finance is probably the most all encompassing business field there is.  It literally
takes into account all aspects of business.  Economics, Marketing, Productions,
Accounting, Management, even information systems are all summarized and
wrapped up in Finance.

But enough about why to study it, what is it?

What is Finance? Read what I said in a newsletter not too long ago when I was
asked to describe what Finance is:   Finance is the most encompassing of all
business enterprises.  To understand finance you must know about the entire
business, indeed the entire economy.  So for a few minutes lets step back and
pretend that we never took economics and are new to this earth. The Financial
system (or the economy if you prefer) is composed of consumers, manufacturers,
distributors.  These groups need money to purchase products and services. One
way of looking at Finance is that Finance is that field of study that is responsible
for getting the money to purchase these goods and services The purpose of the
Financial System is to make sure that the money flows to those who value it the
highest (that is those who can put it to the “best” use). Within the Financial
profession there are traditionally 4 main areas of finance Corporate Finance
Investments Financial Institutions International Finance
BTW Here if you really feel like being contrary you might argue that personal
finance is an additional area of finance and to that I would have to agree.  But since
the text that we were using the semester I wrote this said there are 4 main types,

we’ll live with that for now.  And anyways, who wants to be contrary.   We
will look at all four areas (OK five if you insist) throughout the semester but will
spend much of our time focusing on Corporate Finance because it is the most
essential for anyone in business.  In fact it is sometimes called Business Finance
Where does Finance fit within in a firm? Finance is generally seen as a staff
position.  That is it does not directly produce anything but rather helps others
produce things.  The head of the Finance Department is called a CFO (or VP of
Finance).  (S)he reports directly to the CEO and is often the second highest paid
person at the firm.
The Finance Department is responsible with three main types of questions: Capital
Budgeting–which is a fancy way of saying “what should we invest in?” Obvious
answer is in projects whose benefits exceed the costs. Capital Structure-this is how
the firm should obtain the necessary money “it needs to support its long term
investments.”  English translation is: how much debt and how much equity should
the firm have and how (from whom) should the firm raise these monies from.
Working Capital Management-This is more of the day-to-day operations at most
firms.  It is concerned with short term assets and short term liabilities.  Examples
of these issues include how much inventory to hold and whether to allow
customers to buy on credit.