What is Finance?
Is it worth it? This is the single, simple, and critical question that finance seeks to answer. Is it worth it for a company to make a strategic acquisition? Is it worth it for a mutual fund manager to buy a particular stock? Is it worth it for a company to issue a bond? Is it worth it for a recent graduate to pursue an MBA? Is it worth it to put solar panels on a house? Finance applies quantitative and qualitative analysis to answer these questions and many others, all with the aim of determining whether something is worth it.
More broadly, finance is the study of the optimal allocation (procurement, deployment, and distribution) of scarce financial resources. What is the best way for a startup to acquire financing? What are the best new projects for a firm to invest in? What is the best way for a mature firm to return excess capital to its shareholders? These are all questions finance seeks to answer.
- Forecast expected cash flows from investment opportunities and potential projects
- Assess the risk and uncertainty associated with investment opportunities and potential projects
- Perform industry and macro-economic analysis
- Estimate the value of financial assets and options
- Minimize, manage, and hedge risk
- Study the efficiencies of the markets in which financial assets trade
- Analyze the interplay between time and interest
- Utilize diverse technical, analytical, critical-thinking and problem solving skill sets