Modern Approach

The modem approach views the term financial management in a broad sense and provides a conceptual and analytically framework fer financial decision making. According to it the finance function covers both acquisition of funds as well as their allocation. Thus, apart from the issues involved in acquiring external funds, the main concern of financial management is the efficient and wise allocation of funds to various uses, Defined in a broad sense, it is viewed as an integral part of overall management.

The new approach is an analytically way of viewing the financial problems of a firm. The main contents of this approach are 5. What is the total volume of funds an enterprise should commit? What specific assets should an enterprise acquire? How should the funds required be financed? Alternatively, the principal contents of the modem approach to financial management can be said to be: (i) How large should an enterprise be, and how fast should it grow? (ii) In what form should it hold assets? and (iii) What should be the composition of its liabilities?

The three questions posed above cover between them the major financial problems of a firm: In other words, the financial management, according to the approach, is concerned with the solution of three major problems relating to the financial operations of a firm, corresponding to the three questions of investment, financing and dividend decisions. Thus, financial management in the modem sense of the firm can be broken down into three major decisions as functions of finance: (i) The investment decision, (ii) The financing decision, and (iii) The dividend policy decision.

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