Finance Overview

What is Finance?

Finance is defined as the providing of funding and management of money for individuals, businesses, and governments. The financial system includes the circulation of money, managing of investments, and lending of funds. In businesses, the finance team is responsible for ensuring the company has enough capitalCapitalCapital is anything that increases one’s ability to generate value. It can be used to increase value across a wide range of categories such as financial, social, physical, intellectual, etc. In business and economics, the two most common types of capital are financial and human. This guide will explore all the above, that the appropriate investmentsCapital ExpenditureA Capital Expenditure (Capex for short) is the payment with either cash or credit to purchase goods or services that are capitalized on the balance sheet. Put another way, it is an expenditure that is capitalized (i.e. not expensed directly on the income statement) and is considered an "investment". Analysts view Capex are made, and that the company’s revenuesSales RevenueSales revenue is the starting point of the income statement. Sales or revenue is the money earned from the company providing its goods or services, income and expenses are well managed. This guide will analyze each of the various types of finance.

Types of Finance

There are three main types of finance:

1. PersonalPersonal FinancePersonal finance is the process of planning and managing personal financial activities such as income generation, spending, saving, investing, and
2. CorporateCorporate Finance OverviewCorporate Finance involves the financial aspect of businesses wherein sources of funds are determined, existing assets invested, excess profits distributed. Corporate finance also includes the tools and analysis utilized to prioritize and distribute financial resources. The ultimate purpose of corporate finance is to (Business)
3. PublicPublic FinancePublic finance is the management of a country's revenue, expenditures, and debt load thought various government and quasi-government institutions. Examples, (Government)

#1 Personal Finance

From a personal perspective, finance is the management of one’s income, expenses, investments, and obligations. Individuals often work with a personal bankerPersonal Banker Job DescriptionPersonal bankers offer help in managing and overseeing the financial needs of a client's personal bank account. Personal Banker Job Description details include Aid customers in opening, managing and optimizing their bank accounts and other products, pursue leads and potential customers, investment advisor, accountant, mortgage broker, and other professionals to manage their financial situation.

Below are the main examples of the types of items people deal with on a personal financial level.

Examples:

• Bank accounts
• Credit cards
• Mortgages
• Lines of credit
• Employment incomeCompensationFinance is defined as the providing of funding and management of money. The three types of finance are individual, business, and government. This guide has
• Personal spending and expenses
• Taxes
• Savings
• InvestmentsTrading & InvestingFinance is defined as the providing of funding and management of money. The three types of finance are individual, business, and government. This guide has (stocks, bonds, real estate, etc.)

#2 Corporate Finance (Business)

From a business perspective, corporate financeCorporate Finance OverviewCorporate Finance involves the financial aspect of businesses wherein sources of funds are determined, existing assets invested, excess profits distributed. Corporate finance also includes the tools and analysis utilized to prioritize and distribute financial resources. The ultimate purpose of corporate finance is to is the management of a company’s funding, its sources, uses of capital, and the management of its profit and loss (P&L) statement. The professionals at a business that have responsibility for managing this area include accountants, financial analysts, managers, and executives such as the Chief Financial OfficerWhat Does a CFO DoWhat does a CFO do - the job of the CFO is to optimize a company's financial performance, including: reporting, liquidity, and return on investment. Within a company, these responsibilities fall into departments typically known as the controller's group, treasury, and financial planning and analysis (FP&A) (CFO).

Examples:

• Debt
• Equity
• Cost of CapitalCost of CapitalCost of capital is the minimum rate of return that a business must earn before generating value. Before a business can turn a profit, it must at least generate sufficient income to cover the cost of the capital it uses to fund its operations. Cost of capital consists of both the cost of debt and the cost of equity
• Capital Structure
• Return on Investment (ROI)Return on Investment (ROI)Return on Investment (ROI) is a performance measure used to evaluate the returns of an investment or to compare efficiency between different investments. ROI measures the return of an investment relative to the cost of the investment.
• Assets
• Liabilities
• Balance SheetBalance SheetThe balance sheet is one of the three fundamental financial statements. These statements are key to both financial modeling and accounting. The balance sheet displays the company’s total assets, and how these assets are financed, through either debt or equity. The balance sheet: Assets = Liabilities + Equity
• Revenues
• Expenses
• Profit
• Income StatementIncome StatementThe Income Statement (or Statement of Profit and Loss) shows performance from operations of a business. The financial statement begins with revenues and
• Cash Flow
• Dividends
• Cash Flow StatementCash Flow Statement​A Cash Flow Statement (officially called the Statement of Cash Flows) contains information on how much cash a company has generated and used during a given period. It contains 3 sections: cash from operations, cash from investing and cash from financing. See examples and detailed descriptions this guide

#3 Public Finance (Government)

From a government perspective, finance includes the management of a country’s national budget, treasury department, the central bank, and other levels of government. It focuses on collecting tax revenue and spending that money on national services and programs such as roads, hospitals, and social security.

Examples:

• Income tax
• Sales tax
• Property tax
• InflationInflationInflation is an economic concept that refers to increases in the price level of goods over a set period of time. The cause for inflation in the short and me
• Infrastructure spending (roads, hospitals, etc.)
• Social security and insurance
• Supply of money
• International trade
• Employment
• Gross national product (GNP)Gross National ProductGross National Product (GNP) is a measure of the value of all goods and services produced by a country’s residents and businesses. It estimates the
• National debt
• National budget

Finance Careers

CFI is on a mission to help anyone become a world-class financial analyst and have a meaningful career. Below is a list of some of the most career paths for professionals in the field.

Common professions include:

• Personal Banker
• Commercial Banker
• Investment BankerInvestment BankingInvestment banking is the division of a bank or financial institution that serves governments, corporations and institutions by providing underwriting (capital raising) and mergers and acquisitions (M&A) advisory services. Investment banks act as intermediaries between investors and corporations who require capital
• Research Analyst
• AccountantAccounting Salary GuideIn this accounting salary guide, we give you the midpoint compensation figures for those employed both in public and private accounting. Accountants are responsible for examining financial statements to ensure accuracy and compliance with existing laws and regulations, handling tax-related tasks such as calculating the
• Treasurer
• Financial AnalystFinancial Analyst Job DescriptionSee a real Financial Analyst Job Description including all the skills, experience, and education required to be the successful candidate for the job. Perform financial forecasting, reporting, and operational metrics tracking, analyze financial data, create financial models

Other Types of Finance

In addition to the three main types of finance outlined above, there are some other areas that can be layered onto or woven throughout: personal, business and government.

Other types include:

• Behavioral – deals with the social and psychological impact human decision making has on investments. The effect humans have on investment decision making includes, biases, errors in cognition, logic, fear, and greed. Learn more in CFI’s Behavioral Finance CourseBehavioral FinanceBehavioral finance is the study of the influence of psychology on the behavior of investors or financial practitioners and their effect on the markets..
• Social – a philosophy of making and managing investments that have a social impact and social benefit on society (in addition to an economic benefit).
• Non-profit – while non-profits don’t have shareholders and don’t need to generate economic benefit, they still require the same types of financial management as other for-profit companies.

Qualifications

Professionals in the industry often have a wide range of qualifications.  Unlike law or medicine, there is generally no licensing requirement to work in the field (other than the Series 7 for investment advisors). Most professionals simply have a degree in business or a certification.

Common qualifications include:

• Bachelor of Commerce (BComMost Common BCom JobsHere we outline the most common career paths for B.Com (BCom) graduates straight out of university, and highlight the skills that are required to be a good fit for that path.  The most common BCom jobs are found in accounting, finance, marketing, and human resources.)
• Bachelor of Arts (Economics)
• Master of Business Administration (MBAIs an MBA worth it?If you're thinking of going to business school you may be asking, is an MBA worth it?. The answer (as in every MBA class) is: "it depends". Other than the workload of doing an MBA, there is almost no reason not to do an MBA if your boss is paying for it.  They may use it as leverage against you and lock you in, but the ROI is incredible if it's free (obviously).)
• Certified Public Accountant (CPAAmerican Institute of CPAs (AICPA)The American Institute of CPAs (AICPA) is a non-profit organization of certified public accountants in the United States. It was established in 1887, and its role is to create and grade the Certified Public Accountant (CPA) examinations. Individuals seeking to practice as accountants in the United States must pass the)
• Financial Modeling & Valuation Analyst (FMVAFMVA™ CertificationThe Financial Modeling & Valueation Analyst (FMVA)™ accreditation is a global standard for financial analysts that covers finance, accounting, financial modeling, valuation, budgeting, forecasting, presentations, and strategy. )

Excel Modeling Skills

Across the entire industry, one of the most important and highly sought-after skill sets is financial modeling and ability to create an Excel model that evaluates a certain situation. The screenshot below shows an example from one of CFI’s Excel modeling courses.

Additional Resources

Thank you for reading this guide and hopefully, it has helped to solidify your understanding of the industry. CFI is the official global provider of the Financial Modeling & Valuation Analyst (FMVA)™FMVA™ CertificationThe Financial Modeling & Valueation Analyst (FMVA)™ accreditation is a global standard for financial analysts that covers finance, accounting, financial modeling, valuation, budgeting, forecasting, presentations, and strategy. designed to transform anyone into a world-class analyst.

To help you advance your career, these additional resources will be helpful:

• What is investment banking?Investment BankingInvestment banking is the division of a bank or financial institution that serves governments, corporations and institutions by providing underwriting (capital raising) and mergers and acquisitions (M&A) advisory services. Investment banks act as intermediaries between investors and corporations who require capital
• Interview questions and answersInterviewsFinance is defined as the providing of funding and management of money. The three types of finance are individual, business, and government. This guide has
• The analyst TrifectaThe Analyst Trifecta® GuideThe ultimate guide on how to be a world-class financial analyst. Do you want to be a world-class financial analyst?  Are you looking to follow industry-leading best practices and stand out from the crowd? Our process, called The Analyst Trifecta® consists of analytics, presentation & soft skills
• Free Accounting BookAccounting BookCFI's Principles of Accounting book is free, available for anyone to download as a PDF. Read about bookkeeping, accounting principles, financial statements, with 66 pages of lessons and tutorials. From general transaction recording conventions to the full accounting cycle and finally to important accounts, the book