Finance a very important term used in our everyday life. Each and everyone is surrounded by our own financial situations. So, what is Finance?
Finance is the management of money or investment particularly in relation to companies, organizations, governments, and even individuals. Finance is concerned with the investment and deployment of assets and liabilities over “space and time”: i.e. it is about performing valuation and asset allocation today, based on risk and uncertainty of future outcomes, incorporating the time value of money
Finance is majorly split into two broad categories:
- Corporate Finance
Corporate Finance is the division of finance that deals with how corporations deal with funding sources, capital structuring, and investment decisions. It ranges from capital investment decisions to investment banking.
- Personal Finance
Personal finance is about meeting personal financial goals, whether it’s having enough for short term financial needs, planning for retirement, or saving for a child’s education.
Thus, let’s further look into the difference between corporate finance and personal finance.
- Corporate finance refers to the finances of the organization- companies, government agencies, and institutions such as hospitals.
Personal Finance deals with such parameters but applied to an individual’s financial position.
- Business credit is different for corporate finance as it differs on enabling you to obtain working capital for the purpose of running the business for its growth. In the case of personal finance, the credit will be assessed to determine whether or not to extend credit.
- In personal finance having leverages can result in a devasting loss for the investor whereas in the case of corporate finance leverages has a tremendous upscale as it helps in building the business or increases the profit margins.
- Since the primary goal of corporate finance is to increase the shareholders’ value, it is applicable to financial problems for all kinds of firms.
Personal finance on the other hand is concerned with the purpose of managing financial planning for a greater need for people to understand and take control of their own finances.
- Corporate finance may be associated with transactions in which capital is raised in order to create, develop, grow, or acquire businesses. But personal finance may be associated with an individual or a family unit performs to budget, save, and spend monetary resources over time, taking into account various financial risks and future life events.
Thus, it can be said that the main areas of personal finance are income, spending, saving, investing, and protection whereas in the case of corporate finance entails 3 primary areas of capital resource allocation being capital budgeting, dividend policy, and funding.
Therefore, it is important for an investor to understand the source of fund one requires depending upon its requirement and purpose which also need to be dealt wisely for having an investment resulting in the future profit margins by keeping in mind the risks and volatility of the market.