Definition of Financial Terms

Finance is a broad field in business that contributes to the bigger part of any organization, company or a nation. It involves national and international systems of financing business and banking. With the general field of finance, it is divided in to three distinct groups. That is the financial institutions and markets, financial management and investment. Financial institutions and markets consist of an overview of the financial system and its components of policy makers, monetary systems, and financial markets (Ronald, Melicher & Norton, 2010). A financial institution collects funds from savers and issues them to other individuals or invests them in people or businesses that need cash.

The financial management deals with how a business will manage its assets liabilities and equity to come up with goods and services in the business. The area of investment deals with individuals who invest in financial markets by using information from financial institutions to evaluate the various investments in securities. All this area is important in the identification of appropriate financial information before communicating to the managers and the decision makers. When an individual invest they normally expect a Return on Investment at the end of the stated period. Return on investment is the total amount a company or a person Yield as a percentage of the total value of assets invested. It is calculated as income minus cost then multiple the results with cost of investment. This ratio helps express the total profit or loss on investment as a percentage of value invested. Rate of Return on the other hand is the discounting rate used in capital budgeting that makes the net present value equal to zero (Ben Best). It is normally used to rank the various projects to be undertaken and it appears in the cash flow as an expense. A Cash Flow is the analysis of the essential movement of money in and out of business and it determines the business solvency.

This entry was posted in Definition Essay and tagged , , , . Bookmark the permalink.