Business finance is a broad term encompassing things regarding the study, creation, management, and allocation of financial resources. In business finance, there are three major areas that need to be studied: first, financial markets; second, banking; and third, investment. The study of financial markets involves learning about how different economic activities affect each other, allowing the market to fluctuate and rise and fall in price, so that businesses can earn income from all of these various activities at any given time. Banking on the other hand, involves looking into how banks make loans, creating demand and supply for bank credit, and determining the interest rates that they will allow for. Investment then includes everything that goes into making money, as well as the factors that go into determining the value of something (the capital).
It goes without saying that business finance cannot be viewed merely as accounting principles, with corresponding accounting consequences. The true scope of business finance is in fact much wider than most observers realize, as it is closely intertwined with many other economic aspects such as: corporate finance, economic growth, fiscal policy, insurance, mergers and acquisitions, and even the behavior of investors. As such, business managers must be capable of seeing beyond the traditional, textbook approaches and adopt a much broader methodology to analyze these issues. Some typical tools used in the analysis of business finance include: asset analysis, financial models, operations research tools, pricing theory, business development, and business valuation. Some of these tools are used in more advanced degrees programs, but the bulk of business-finance related study is covered by the basic undergraduate degree.
The field of business finance is constantly changing as economies grow and debt increases and decreases. As a result, business managers must become proficient at understanding the fluidity of business finance, as it is inevitably affected by the political and economic climate. In addition, the changing structure of banks and credit card companies means that business owners must be able to alter their borrowing costs and debt ratio accordingly, should they wish to take advantage of current low interest rates. For example, business owners may wish to borrow more money against their existing assets if they anticipate future profits to rise above their invested funds.