Evaluation of Financial Management:

            Financial management, as an academic discipline, has undergone significant changes over years as regards its scope and coverage. In order to have a better exposition to these changes, it will be appropriate to study the traditional approach and modern approach of financial management.

Traditional Approach:

The traditional approach , which was popular in the early part of this century, limited the role of financial management to raising and administering of funds needed by the corporate enterprises to meet their financial needs. It broadly covered the following three aspects:

(i)            Arrangement of funds from the financial institutions;

(ii)          Arrangement of funds through financial instruments, viz. shares & debentures, bonds etc;

(iii)          Looking after the legal and accounting relationship between a corporation and its sources of funds.

Thus, the traditional concept of financial management included within its scope the whole gamut (range) of raising the funds externally. The term “Corporation Financial” was used in place of the present term “Financial Management”.

The traditional approach evolved (developed) during 1920 continued to dominate academic thinking during the forties and through the early fifties.

Modern Approach:

            The traditional approach outlived its utility due to change business situation since mid 1950’s. Technological improvements, widened marketing operations, advent and usages of computer in financial decision making, development of various pricing models, valuation models and investment portfolio theories enlarged the scope of finance. Decision to arrange funds, was to be seen in consonance with their efficient and effective use. The total approach to the study of finance has change and termed as “Financial Management”.

            Thus, according to modern concept, financial management is concerned with acquisition of funds as well as their allocation. The modern approach is an analytical way of looking at the financial problems of a firm. The main contents of the new approach are as follows:

(i)            What is the total volume of funds an enterprise should commit?

(ii)          What specific assets should an enterprise acquire?

(iii)         How should the funds required be finance?

The above questions relate to four broad decision areas of financial management, viz., funds requirement decision, financing decision, investment decision and dividend decision.

By: -Manoj Kumar Hazarika, Assistant Professor, Darrang College, Tezpur. Ph: -9613418906