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Financial Management - Finance – An Introduction

The Changing Concept of Finance - Finance Function

   Posted On :  19.06.2018 09:33 am

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.

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