Finance is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting. There are three main types of finance: (1) personal, (2) corporate, and (3) public/government. This guide will unpack the question: what is finance?
Video Explanation of Finance
Watch this short video to quickly understand the main concepts covered in this guide. It’ll explain the definition of finance, provide examples of finance, and cover some of the common topics on finance.
The easiest way to define finance is by providing examples of the activities it includes. There are many different career paths and jobs that perform a wide range of finance activities. Below is a list of the most common examples:
- Investing personal money in stocks, bonds, or guaranteed investment certificates (GICs)
- Borrowing money from institutional investors by issuing bonds on behalf of a public company
- Lending money to people by providing them with a mortgage to buy a house with
- Using Excel spreadsheets to build a budget and financial model for a corporation
- Saving personal money in a high-interest savings account
- Developing a forecast for government spending and revenue collection
There is a wide range of topics that people in the financial industry are concerned with. Below is a list of some of the most common topics you should expect to encounter in the industry.
- Interest rates and spreads
- Yield (coupon payments, dividends)
- Financial statements (balance sheet, income statement, cash flow statement)
- Cash flow (free cash flow, other types of cash flow)
- Profit (net income)
- Cost of capital (WACC)
- Rates of return (IRR, ROI, ROA)
- Dividends and return of capital
- Creating value
- Risk and return
- Behavioral finance
A definition of finance would not be complete without exploring the career options associated with the industry. Below are some of the most popular career paths:
- Commercial banking
- Personal banking (or private banking)
- Investment banking
- Wealth management
- Corporate finance
- Financial planning
- Equity research
Additional Finance Resources
To continue developing and preparing for a career in the field, these additional CFI materials will be helpful:
More Questions and Answers
CFI’s mission is to help anyone become a world-class financial analyst and has a wide range of resources to help you along the way. In order to become a great financial analyst, below are some additional questions and answers for you to explore further:
What Does Finance Mean? Its History, Types, and Importance Explained
- Finance is a term broadly describing the study and system of money, investments, and other financial instruments.
- Finance can be divided broadly into three distinct categories: public finance, corporate finance, and personal finance.
- More recent subcategories of finance include social finance and behavioral finance.
- The history of finance and financial activities dates back to the dawn of civilization. Banks and interest-bearing loans existed as early as 3000 BC. Coins were being circulated as early as 1000 BC.
- While it has roots in scientific fields, such as statistics, economics, and mathematics, finance also includes non-scientific elements that liken it to an art.