I believe every academic study has at least some direct real life benefits or uses. although most of us consider academic knowledge is for better job in future but also this academic knowledge change a lot in our inside and we follow this knowledge subconsciously in our real life. I am a student of Finance. Today I am going to discuss some real life uses of Finance knowledge from my aspect.
1. Using time value of money concept:
This is the fundamental concept about money. we consider this is the must follow rule in both personal or corporate life. what is it mean? the money in our hand today is worth more than the same amount of money in future. so if we invest a certain amount of money today and get the same amount of money late that means we lost some of our money. after studying finance now one will know he/she must get return above the invested amount considering discount rate.
2. Understanding Opportunity cost:
Opportunity cost is another important method. I think this concept will help many in real life if you know how to calculate it. so what is it? opportunity cost is the opportunity or benefits that an investor misses because of choosing one alternative project over another. let me give an example. You have 1000 dollar for an investment and you have three different project for investing that money and you accept the 1st project that mean you reject the other two projects. if you invest in 2nd or 3rd project you may earn more or less than 1st project. that is the opportunity cost.
3. Market analysis
When you have finance knowledge it will help you to do market analysis before making any new investment. Simply Market analysis is a detailed assessment or analysis of a business's or investment's target market and competitive landscape within a specific industry.
4. Manage portfolio
Don't Put All your Eggs in One Basket. Investor always diversify his investment in different project/share/market to minimize the risk. if a investor put all his money in one project or share it has 50% chance to loss his invested money if somehow the project become unprofitable.
5. Financial Analysis
People with financial analysis knowledge can shortly come across with a general decision like is this business going to perform well or not. will the company sustain or not by simply calculating its resources, financial transactions, businesses, budget, wealth, debt, equity etc.
6. Wealth Maximization and Profit Maximization
People always want to maximize their profit from investment. but a investor with true finance knowledge know the difference between profit maximization and wealth maximization. we know for long run business or project we have to maximize its wealth. because of it will increase the market share, reduce the risk and enhance the value of the shares. on the other hand price maximization increase the product price and achieve highest profit but if market have high competition its may fall sales overnight.
7. can set a expected rate of return
After calculating and considering several things like, interest, discount rate, market demand, inflation rate, cost of capital etc. one can easily set a realistic expected rate of return for his investment. and it is quite easy for those who have knowledge of finance.
8. can analyze the investment opportunity
People have money but don't know where to invest and which investment option will generate greater value. but investor with finance knowledge can easily analyze different investment opportunities' value, future performance, and suitability.
9. Right investment time
10. Know the sunk cost
0Comments
Post a Comment