Distinguish between traditional and modern approach of finance function and it's type
Distinguish between traditional and modern approach of finance function and it's type
-> Traditional Approach Of Finance Function
*Scope is confined to the raising of fund
*Narrow sense of procurement of fund
*It involves discussion on the financial institution and instrument.
*It deals with fund required for merge , liquidation , consolidation , reorganization and so on.
*The traditional approach has now been discarded as it suffers from serious criticisms.
*The traditional approach was the outsider looking in approach. such as- investor , financial institution , investment banker etc.
*Internal financial decision making was completely ignored in this approach .
*It pay attention on infrequent happening like merger , reorganization etc.
*Without paying any attention on the day to day financial aspects.
*focus on long term financial problems
*It ignore the importance of working capital .
->Modern Approach Of Finance Function
*After the 1950's , a number of economic and environmental factor such as technological innovations , industrialization , intense competition , interference of government , population etc effect the utilization of financial resources .
*The emphasis shifted from episodic financing ( long term financing ) to day to day financing ( working capital ) .
*It involve factor such as size and nature of technology , shaping the profitability , amount of risk taking , selecting the assets etc .
*It involve optimum use of fund .
*It have a broader sense
*First find-out source of raising funds and second their proper utilization .
*Cost of raising fund and the returns should be compared .
*It involve basic management decisions i.e., investment decisions , finance decision and dividend decisions
->Type of finance function / Decision
*There are three type of finance function
1-Investment decision
2-Financing decision
3-Assets management decision
define below :
-> Traditional Approach Of Finance Function
*Scope is confined to the raising of fund
*Narrow sense of procurement of fund
*It involves discussion on the financial institution and instrument.
*It deals with fund required for merge , liquidation , consolidation , reorganization and so on.
*The traditional approach has now been discarded as it suffers from serious criticisms.
*The traditional approach was the outsider looking in approach. such as- investor , financial institution , investment banker etc.
*Internal financial decision making was completely ignored in this approach .
*It pay attention on infrequent happening like merger , reorganization etc.
*Without paying any attention on the day to day financial aspects.
*focus on long term financial problems
*It ignore the importance of working capital .
->Modern Approach Of Finance Function
*After the 1950's , a number of economic and environmental factor such as technological innovations , industrialization , intense competition , interference of government , population etc effect the utilization of financial resources .
*The emphasis shifted from episodic financing ( long term financing ) to day to day financing ( working capital ) .
*It involve factor such as size and nature of technology , shaping the profitability , amount of risk taking , selecting the assets etc .
*It involve optimum use of fund .
*It have a broader sense
*First find-out source of raising funds and second their proper utilization .
*Cost of raising fund and the returns should be compared .
*It involve basic management decisions i.e., investment decisions , finance decision and dividend decisions
->Type of finance function / Decision
*There are three type of finance function
1-Investment decision
2-Financing decision
3-Assets management decision
define below :
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