14 Importance of Learning Finance

14 Importance of Learning Finance

You know finance is not only receiving money from different sources but also proper utilization of money or financial resources. Here utilization means investing money in accordance with risk taking behavior where return is maximum. The main objective of financing is to ensure right amount of money at the right time. For better economic and financial decision making you have to have basic knowledge of finance and financing. Everyday we take financial decision although we are not aware of, we are actually doing financing like a corporate finance manager. If you want to take better financial decision then you must know the core financing principles. Here in this article I will clarify the 14 importance of learning finance both for the individuals, corporate finance manager and organization.

14 Importance of Learning Finance

The reason I want to discuss about the importance of learning finance is to motivate you to learn finance and apply it in your daily life which will help you to become a better decision maker.

How to Learn Finance and where to learn Finance?

It is not easy to learn finance if you are not aware enough to think it deeply and understand the scenarios and logic behind the financing principles. I personally follow different strategies to learn finance as much as I can. As an individual you have lot of scope to learn finance and it can be:

  1. Academic Learning of Finance
  • You can do graduation or post-graduation in finance and also get CFA degree if you have passion enough.
  1. Professional Training
  • Institutional Training
  • On the Job Training
  • Online Training Course
  1. Self-Learning
  • Reading Books
  • Study Research Paper, Journal, articles
  • Watch online lectures or tutorials

List of 14 Importance of Learning Finance

The importance of learning finance is given below which are listed from the different perspective. Hopefully this will add value to your learning phase.

  1. Proper Understanding of Time Value of Money
  2. Take Better Financing Decision
  3. Aware of Valuation of Financial Resources
  4. Understand the Requirement of Evaluation of Investment Opportunities
  5. Able to Analyze Each and Every Opportunity Cost
  6. Put Your Efforts for Maximization of Wealth
  7. Acquire Maximum Return of Your Investment
  8. Increase Your Analytical Skills
  9. Manage Your Personal and Professional Life in a Better Way
  10. Understand the Requirement of Forming a Portfolio
  11. Deep Analysis of Sources of Fund
  12. Understand the Investors Life Cycle to Choose Right Investment Time
  13. Understand Key Success Factors of Financing
  14. Know How to Get Your Cost of Capital and Analyze it

Take Better Financing Decision

The most important thing is to take better financing decision as every financing decision both for borrowing and lending is related with cost and benefit. A better financing decision will bring financial success which is expected by every individual.

Proper Understanding of Time Value of Money

If you actually want to know finance then you must know the concept of time value of money that with the time passes the value of your money is decreased. So, to ensure value maximization you are to invest in a way which increase the net present value of your wealth.

Aware of Valuation of Financial Resources

As an investor of both money and capital market, please make sure that you do proper valuation otherwise you may lose your valuable financial resources. That’s why every investor need to be aware of valuation of financial resources or instruments.

Requirement of Evaluation of Investment Opportunities

Proper understanding of requirement of evaluation of investment opportunities will induce you to do capital budgeting (NPV, IRR, PBP, MIRR, PI etc.). Both for long term and short-term investment opportunities need to be evaluate, specially for long term investment opportunities.

Able to Analyze Each and Every Opportunity Cost

Every decision whatever we are taking in our daily life we forgo other opportunities, so it is required to do evaluation of opportunity cost and invest where your opportunity cost is lower. The investment decision is actually dependent on the behavior of investors.

Acquire Maximum Return of Your Investment

You need to learn finance because investors always intention are to ensure maximize their return on their investment. Here, maximum return will increase the value of your asset.

Put Your Efforts for Maximization of Wealth

A financially sound person always tries to put all of his/her efforts for maximization of wealth. Maximization of wealth will bring more profit for you or for your organization.

Deep Analysis of Sources of Fund

Whenever you plan for collection of funds you may find several short terms or long-term sources. If you have adequate knowledge of financing then you will be able to do deep analysis of sources of funds. But one thing is you must know financing concepts and how it works.

Know How to Get Your Cost of Capital and Analyze it

Whatever the amount of capital, is not free of cost. Every capital has cost, so before taking investment decision you have to calculate and analyze the cost of capital but before that you must know the finance. That’s why there is huge importance of learning financing.

Understand the Requirement of Forming a Portfolio

After knowing finance properly, you must know what is portfolio and why we form portfolio. A portfolio is a set of different mixture of investment where both risk free and risky investment is there, the main purpose it to decrease the overall risk on investment. If you learn finance then you must know how to form portfolio both for individuals and organizations.

Manage Your Personal and Professional Life in a Better Way

If want to become financially sound person then you must know finance and after that you will be able to mange your personal and professional life in a better way. Your financial strength will be increased by the right financing decision.

Understand the Investors Life Cycle to Choose Right Investment Time

Be aware of investor life cycle and choose when to invest and when to save your valuable money. Your money is your asset, it is your decision whether you want to grow it by investing it on the right time.

Understand Key Success Factors of Financing

Behind every successful finance manager, a secret is there, the secret is understanding the key success factors and application of the factors at the right time in a right place.

Increase Your Analytical Skills

Ultimately by knowing finance deeply you will be able to increase your analytical skills. You will be able to take good financing decision which will give you financial freedom, maximize your wealth and increase your spending power.

If you have any confusion of any thing related with the importance of learning finance then please let me know, I will try to clarify it further.

Written by

Md. Nahian Mahmud Shaikat

Qualities of a Good Finance Manager

Qualities of a Good Finance Manager

Finance is the lifeblood of every organization because without financing it is impossible to do any kinds of economic activities for the business organization. For profit-making organization or not for profit organization, financing is one of the core task done by the finance manager but whenever we want to evaluate the cost-benefit analysis or prospects of the profit-making organization we have to think about the proper analysis of financial statements (income statement, cash flow statement, owners equity statement, and balance sheet).

qualities of a good finance managerIn addition to this analysis finance manager is required to develop a financial model, ratio analysis, forecasting of different accounts, cash budgeting, common size statement analysis, sensitivity and scenario analysis, adapt least cost financing sources, investment decision in the profitable sectors, forming optimal portfolio to diversity investment for reducing overall risk. For all these analyses a finance manager or financial analyst has to have proper knowledge of financial terms and their changing effects on the financial condition of an organization.

Qualities of a Financial Analyst

  1. Analytical Skill
  2. Understanding of Time Value of Money
  3. Efficient User of Modern Technology
  4. Good Communication Skill
  5. Numerical Proficiency
  6. Ability to Diverse Investment
  7. Ability to Forecast
  8. Quick Decision Making
  9. Ability to Analyze Quantitative Factors

Although a finance manager needs to have different types of qualities from my point of view these are the qualities that a finance manager of a financial analyst must have.

Analytical Skills

Taking financial decision without any kind of analysis is throwing a stone in a dark hole, but an effective financial decision must not be this kind. For effective financial decision, there must be a proper analysis of historical data and all existing privately and publicly available information. So that finance manager actually can assume something about a financial outcome that may happen.

Proper Understanding of Time Value of Money

Time value of money is one of the important concepts that must be considered when making investment or financing decision for the company. Because by using this concept we can calculate the present value and future value of an amount. That’s why every finance manager has to have the clear understanding of the time value of money concept for adapting right investment or financing alternatives.

Efficient Operator of Modern Technology

Now a day’s technology made it easy to do analysis with the help of computer-based software. Popular software used for analysis are Microsoft Excel, SPSS, STATA etc. so financial analyst or financial manager must need to know how to operate this software and how to interpret the result generated by this software.

Communication Skills

Whenever a finance manager wants to analyze the financial performance of the company, he/she will be required to have financial information about the company, so through communicating with respected department manager collect information. Also what kinds of information manager are asking must be conveyed clearly to the respected parties.

Numerical Proficiency

Another important qualification of financial manager or analyst is proficiency in numerical calculation. For financial decision making most of the case we mainly use quantitative data which is a numerical number. Ability to calculate and understand numerical variables is required to take right financial decision.

Ability to Diversify Investment

One of the main tasks of financial manager or portfolio manager or financial analysis is to find out the optimal portfolio for the company from the existing investment opportunities. You know that diversification is the only way through we can minimize our unsystematic portion of the risk, that’s why managers always try to diversify their investment to maximize the return of the company. A person who has the ability to analyze the market and identify the optimal portfolio through diversification is to be the best financial manager or financial analyst for the company.

Ability to Forecast

One of the important things that a financial analyst has to do is forecasting about the future. Forecast about financing requirement and investment decision considering the future economic prospects or recession. Another thing is forecast about the growth of the overall industry and the company.

Quick Decision Making

Sometimes there may have the opportunity of making huge money through investing risky project short-term basis and these types of opportunities mainly chosen by the aggressive financial managers. Successful financial managers are quick decision makers and their decision is most of the time is an effective one. So quick decision making is the ability of person which helps to become a financial analyst.

Ability to Analyze Quantitative Factors

Although most of the cases finance manager deals with quantitative data but in some cases, they also use qualitative data also, because there may have some non-monetary factors which have a great impact on the investment and financing alternatives. So both quantitative and qualitative analytical proficiency is required to have a financial analyst to take the right decision for the company.

Educational Qualification Required to Become a Finance Manager

Not every people become the financial manager because to become a financial manager you have to understand all the necessary concept and ideas about the financing and investment. Graduated from the background of economics, finance or from accounting may become a finance manager. But now a day’s finance background people are getting more preference because of understanding of proper understanding of what finance is all about. If you dreaming to become finance manager or analyst then you should study finance first and get BBA, MBA in finance and finally try to become CFA.

Although around the world you can find there is a higher demand for finance job but in our country (Bangladesh) it was hard to find a pure financial job. But now a day’s opportunity is creating for the finance students. Hope in future there will be a higher demand of finance manager/ financial analyst in the corporate businesses.