Scope of financial management

Traditional
approach
Modern approach
Financial management:
 According to Soloman, “financial management in concerned
with the efficient use of important economic resource namely
Capital funds”
Scope of financial management:
Traditional approach:
 Arrangement of fund from financial institutions
 Arrangement of fund through financial instruments, viz.,
share, bond, etc.
 Looking after the legal and accounting relationship
between a corporation and it sources of fund.
Outsider-looking-in Approach:
 The approach equated finance function with the raising and
administering of funds
Ignored routine problems:
 The approach gave under emphasis to episode or infrequent
happenings in the life of an enterprise

Ignored Non-corporate enterprises:

 The approach focused attention only on the financial problems of
corporate enterprises.

Ignored working capital financing:

 The approach laid overemphasis on the problems of long-term
financing.

No Emphasis on allocation of funds:

 The approach confined financial management to issues involving
procurement of fund.
Modern approach:
 According to this concept, financial management if concerned
with both acquisition of fund as well as their allocation.

Funds requirement decision:

 A careful estimate has to be made about the total funds required
by the enterprise taking into account both the fixed and working
capital requirement.

Financing decision:
 Every business activity requires funds and hence every financial
manager is confronted with this problem. A proper balance has
to be kept between the fixed and non-fixed cost-bearing
securities.
Investment decision:
 This comprises decisions relating to investment in both capital
and current assets. This would involve fixing the criteria for
evaluating different investment proposals, fixing priorities,
committing funds for them, etc.

Dividend decision:
 The dividend decision involves the determination of the
percentage of profits earned by the enterprise which is to be paid
to its shareholders. The establishment of dividend policy is
another important function of finance manager.