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 capital, that the appropriate investments are made, and that the company’s revenues 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 Personal Finance
From a personal perspective, finance is the management of one’s income, expenses, investments, and obligations. Individuals often work with a personal banker, investment advisor, accountant, mortgage broker, and other professionals to manage their financial situation.
Below are examples of the types of items people deal with on a personal financial level.
- Bank accounts
- Credit cards
- Lines of credit
- Employment income
- Personal spending and expenses
- Investments (stocks, bonds, real estate, etc.)
#2 Corporate Finance (Business)
From a business perspective, corporate finance is the management of a company’s funding, its sources of revenue, use of capital, and the management of its profit and loss (P&L) statement. The professionals at a business that have the responsibility for managing this area include accountants, financial analysts, managers, and executives such as the Chief Financial Officer (CFO).
- Cost of Capital
- Capital Structure
- Return on Investment (ROI)
- Balance Sheet
- Income Statement
- Cash Flow
- Cash Flow Statement
#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 government agencies. It focuses on collecting tax revenue and spending that money on national services and programs such as roads, hospitals, and social security.
- Income tax
- Sales tax
- Property tax
- Infrastructure spending (roads, hospitals, etc.)
- Social security and insurance
- Supply of money
- International trade
- Gross national product (GNP)
- National debt
- National budget
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 Banker
- Research Analyst
- Financial Analyst
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, or government finance.
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 Course.
- Social – a philosophy of making and managing investments that have a social impact and social benefit on society (in addition to any 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 for-profit companies.
Professionals in the financial industry often have a wide range of qualifications. Unlike law or medicine, there are 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 (BCom)
- Bachelor of Arts (Economics)
- Master of Business Administration (MBA)
- Certified Public Accountant (CPA)
- Financial Modeling & Valuation Analyst (FMVA)
Excel Modeling Skills
Across the entire industry, one of the most important and highly sought-after skill sets is financial modeling and the 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.
Thank you for reading this CFI guide. Hopefully, it has helped to solidify your understanding of the financial industry. CFI is the official global provider of the Financial Modeling & Valuation Analyst (FMVA)™ designed to transform anyone into a world-class analyst.
To help you advance your career, these additional CFI resources will be helpful: