FINANCE

Finance

Need of financeFinance, commonly referred to as economics, is the field of economics that examines the role of the government in the economy and the economic consequences of the government's actions. A notable exception to this definition is the study of the government's effects on the business cycle, which is generally considered being a part of macroeconomics rather than finance. Finance is concerned with both positive and normative economic issues. Positive economics is the division of economics that examines the consequences of monetary actions and thus includes the development of theory, whereas normative economics brings in value judgments about what should be done to analyses and often gives recommendations for policy. Normative economic issues, in fact, are discussed and debated more often in the finance literature than in the literatures of most other fields in economics (Thompson, 1994. 27).

As the role of the government in the economy has changed over time, the focus of the public finance literature has similarly evolved. In the 1950s and 1960s, the emphasis of public finance was largely on issues of taxation. Now, with the government significantly involved in many aspects of the economy, the public finance literature has expanded its focus to include virtually all facets of government spending, as well as taxation. Many advances have been made within the field of public finance over the past several decades, and public finance economists have made substantial contributions to many other fields in economics. For example, the economics of aging, a relatively new economic subfield, has benefited greatly from public finance economists who have provided analysis and policy recommendations for issues pertaining to government entitlement programs for retirees.The sources of finance available to a businessMost of the businesses begin life as proprietorships or partnerships, and if they become successful and grow, at some point they fine it desirable to become corporations. (Fromlet, H. 2001 pp. 63-69) A business requires generating funds in order to expand its operations. These funds can be generated by way of equity financing or debt financing. Equity financing is a way of raising funds through the shareholder deposits or by shareholders with the purchase of shares. Equity financing involves initial public offerings (IPOs), issuance of preference shares and rights issue. There is no interest incurred if the funds are raised through equity financing. Debt financing is another way of raising funds for various capital requirements that may arise in a business. Debt financing, however, depends upon external help rather than fund raised internally as in equity financing. The debt financing involves borrowing of money on which interest is paid (Guthrie, 1997. 24).Pros and corns

The company do not have the direct obligation to pay back the invested amount to the shareholders with in a limited time period like in debt financing. 

The share holders become the owners, and partners of the company and they share the profit and loss of the company.

No fixed liability on the company, as compared to the debt financing.

It's a time consuming and costly affair.

The involvement of the shareholders in the decision making may potentially disturb then management of the company and its ...