This approach just emphasizes only on the liquidity and financing of the enterprise.
The Changing Concept of Finance
According to Ezra Solomon, the
changing concept of finance can be analysed by dividing the entire process into
three broad groupings.
First Approach
This
approach just emphasizes only on the liquidity and financing of the enterprise.
Traditional Approach
This
approach is concerned with raising of funds used in an organization. It
compasses
a) instruments, institutions and practice through which
funds are augmented.
b) the legal and accounting relationship between a
company and its source of funds.
Modern Approach
This approach is concerned not only with the raising of funds, but their
administration also. This approach encompasses a) Determination of the sum total
amount of funds to employ in the firm. b) Allocation of resources efficiently to various
assets.
c) Procuring the best mix of
financing – i.e. the type and amount of corporate securities.
An analysis of the aforesaid
approaches unfold that modern approach involving an integrated approach to
finance has considered not only determination of total amount of funds but also
allocation of resources efficiently to various assets of the firm. Thus one can
easily make out that the concept of finance has undergone a perceptible change.
This is evident from the views
expressed by one of the financial experts, namely, James C Van Horne and the
same are reproduced below:Finance concept (function or
scope) has changed from a primarily descriptive study to one that encompasses
regions analysis and normative theory; from a field that was concerned primarily
with the procurement of funds to one that includes the management of assets,
the allocation of capital and the valuation of the firm as a whole; and from a
field that emphasized external analysis to the firm to one that stresses
decision making within the firm. Finance, today, is best characterized as ever
changing with new ideas and techniques. The role of financial manager is
considerably different from what it was a few years ago and from what it will
no doubt be in another coming years. Academicians and financial mangers must
grow to accept the changing environment and master its challenge.
Tags : Financial Management - Finance – An Introduction
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