What is the modern approach to financial management?
Modern approach. The modern approach is an analytical way of looking into financial problems of the firm. According to this approach, the finance function covers both acquisition of funds as well as the allocation of funds to various uses.
The primary function of financial manager is to determine the revenue a company will need to reach its goals. When determining how much capital a company needs, the role of a finance manager includes estimating the size of the business, predicting profitability, and understanding company policies.
Financial management can be approached in two ways: the traditional approach and the modern approach. The traditional approach relies on financial ratios and fundamental analysis to make investment decisions. In contrast, the modern approach uses financial models and statistical analysis to make investment decisions.
The traditional Approach classifies accounts while the Modern approach uses the Accounting equation for accounting. All the ledger accounts are classified as 'Personal' and 'Impersonal accounts' under the Traditional approach. Debit is what comes in whereas credit is what goes out.
Financial management approach measures the scope of the financial management in various fields.it is confined to raising of funds for business expansion. The financial management approach is divided into two major parts ,traditional and modern approach.
A modern financial system may include banks (public sector or private sector), financial markets, financial instruments, and financial services. Financial systems allow funds to be allocated, invested, or moved between economic sectors, and they enable individuals and companies to share the associated risks.
The modern approach is fact based and lays emphasis on the factual study of political phenomenon to arrive at scientific and definite conclusions.
CHARACTERISTICS OF MODERN APPROACHES
These approaches go beyond the study of political structures and its historical analysis. Modern Approaches believe in inter-disciplinary study. They stress scientific methods of study and attempt to draw scientific conclusions in Political Science.
Typically, the primary goal of financial management is profit maximization. Profit maximization is the process of assessing and utilizing available resources to their fullest potential to maximize profits. This has the greatest benefit for company shareholders hoping for the highest possible return on their investment.
With the traditional approach, you‟re expected to move forward gracefully from one phase to the other. With the modern approach, on the other hand, you‟re allowed to perform each phase more than once and in any order [1, 10].
What is the difference between traditional theory and modern theory?
Modern theories of education emphasize individuality and draw from the heritage of ancient Greek and early Christian theories, while traditional theories are more restricted and less focused on individuality.
Traditional management is about control, rules, regulations, boundaries and the source of all new business and ways of working. Traditional managers can be blind to work and employment issues and slow to react to change.
Modern Approach to Accounting
Under the Modern Approach, the accounts are not debited and credited. Hence, the Accounting Equation is used to debit or credit an account. Thus, it is also known as the Accounting Equation Approach. The Basic Accounting Equation is: Assets = Liabilities + Capital (Owner's Equity)
Most association financial management plans can be broken down into four elements. These four elements include planning, controlling, organizing and directing, and decision-making.
Most financial management plans will break them down into four elements commonly recognised in financial management. These four elements are planning, controlling, organising & directing, and decision making. With a structure and plan that follows this, a business may find that it isn't as overwhelming as it seems.
The four principles of finance are income, savings, spending, and investing. Following these core principles of personal finance can help you maintain your finances at a healthy level.
It tells the manager to be pragmatic and open minded. The contingency approach is an improvement over the systems approach. It not only examines the relationships between sub-systems of the organization, but also the relationship between the organization and its environment.
Since the modern approach takes into consideration both the economic and non-economic financial and non-financial factors, measurement of financial analysis predicts better future earning capacity, cash flow and funds flow (or sources and application of funds) position etc.
The accounts are classified as asset accounts, liability accounts, capital or owner's equity accounts, withdrawal accounts, revenue/income accounts, and expense accounts, according to the modern approach.
The financial manager supports investment, financing, and profit distribution decisions. 2) Modern financial managers play an active role in strategic decisions, while traditional managers focused on regular finance activities. Role also differs based on firm size and diversification.
What are the modern techniques of financial statement analysis?
There are five commonplace approaches to financial statement analysis: horizontal analysis, vertical analysis, ratio analysis, trend analysis and cost-volume profit analysis. Each technique allows the building of a more detailed and nuanced financial profile.
The ultimate purpose of Financial management is: to get a maximum return. to increase the wealth of owners.
Financial managers perform data analysis and advise senior managers on profit-maximizing ideas. Financial managers are responsible for the financial health of an organization. They create financial reports, direct investment activities, and develop plans for the long-term financial goals of their organization.
- Profit maximisation.
- Mobilisation of finance in a proper way.
- Ensuring the company's survival.
- Maintaining proper coordination with other departments.
- Lowering the cost of capital.
Modern Rules of Accounting
The traditional approach of accounting categorizes accounts into three types: real, personal, and nominal. However, the modern system classifies accounts into six types: asset, liability, revenue, expense, capital, and withdrawal.
