Is Finance is art or science


Is Finance is art or science

The short answer to whether Finance is art or science is “both.” Finance, concerning a field of study or an area of business, has strong roots in various scientific fields like statistics and mathematics. Even more, many modern financial theories display scientific nomenclature. However, the fact cannot be denied that the financial industry also includes non-scientific elements. 

What is Finance in simple terms? 

Finance is a term that can be used to house several aspects of money. It can generally be stated as the study of the matter related to the creation and management, besides the study of currency, money, and capital assets. There are mainly three categories of Finance- public, private and corporate finance. 


 There are many advantages to financing. They are:

  • The flexibility offered is greater. 
  • You will find improvement in cash flow. 
  • Existing credit lines are preserved. 
  • Reduction of total ownership cost
  • Enhancement of financial ratio
  • Cash forecasting will be improved
  • Benefits are received with payments
  • Boost in sales
  • The average order value gets increased
  • New customers will be attracted
  • Jobs are offered in Financial Sector


Finance as Science

Being an area of business and a field of study, Finance has strong roots in related-scientific regions, like mathematics and statistics. Furthermore, you can notice that many modern business theories match scientific or mathematical formulas. Hence, it can be said that in this financial world, people come across various inconvertible mathematical realities. For example, if your outgoings cross your income, you will be in debt. The use of laws of statistics and mathematics found in science are also found in modern theories of Finance. The Capital asset pricing model and efficient market hypothesis show the behavior of the stock market in a rational manner appropriate. 


The scientific part of Finance involves mathematical calculations on amounts needed to achieve various goals, assumptions made on performance that depend on the historical data set and checking of views leading to certain decisions. Like where to buy a certain property meant for investment reasons, whether it should be residential or commercial, how much of a loan must be taken to fund it, and how much needs to be funded from one’s savings. 


Finance as an art

If discussed in terms of art, Finance involves creativity, customization, and an individual’s behavioral relationship with money, and all of these factors can evolve with time. It could also include providing education to minors on money-related matters. New financial theories provide alternatives on how to raise and manage money. However, these financial theories are not scientifically proven. Most investors are familiar with the fact that markets are not entirely scientific. Studies and research have shown that the weather can slightly influence the behavior of investors. 


Other phenomena that influence are the January effect, which displays the pattern of stock prices falling near the end of the calendar year and rising at the beginning of the coming year. Statistics can be calculated, but the many variables in Finance, including the geopolitical landscape, the weather, income, and stock market performance, impose certainty. With the presence of variables in Finance, it makes it an art. Statistics can help with probabilities, but it will offer no certainty. Even the most rigorous analysis cannot shield from arbitrary market moves.


Why is Finance referred to as both science and art? 

It can be said that Finance is both an art and a science. As discussed above, Finance is a mature science as it provides knowledge about how and when a firm must invest in competing with other firms. On the other hand, it can also be said that Finance is also an art. In recent times, Finance has become very analytical. New financial theories have been introduced. Most of the data has been developed to prove whether these theories are right or wrong. Financial managers must carefully examine the alternatives for raising and managing money. They must also formulate the models so that they can predict the results obtained from the use of any single alternative. 


Hence, in this way, new theories, models, and methods have given Finance a scientific outlook. However, the financial theories cannot precisely be compared with the ‘Scientific Method’ that applies to physics science. Physics tells us what happens from an action. For example, physics tells us that if a ball is thrown upward, it will eventually fall.


Therefore, Finance is a general term that represents a variety of activities. But when they are put together, they combine the practice of managing money, spending, getting, and everything in between, from investing to borrowing. Keeping these activities aside, Finance also denotes people’s tools and instruments concerning money and the systems and institutions through which actions occur. 


Finance can also include something as large as a country’s trade debt or small as the money bill in a person’s wallet. But without it, neither a corporation, or individual household, nor society could function properly.