What is the modern approach of financial management?differences between traditional approach and modern approach of financial management.

Modern approach of financial management

modern-approach-of-financial-management

Modern method: According to the modern approach of financial management, there is a conceptual and analytical structure for financial decision-making. That means the finance role covers both buying and distributing funds. The new method views the term financial management in a wider sense. It is viewed as an important part of general management. The new method is an analytical way of viewing the financial problems of a company. The main parts of the modern method are as follows:

i) What is the total amount of funds a company should commit?
ii) What exact assets should a company acquire?

iii) How should the needed funds be financed?

Thus, financial management, in the modern sense of the term, can be split into four major choices as tasks of finance. They are:

(i) The business decision (ii) The financial decision (iii) The bonus policy decision (iv) The fund-requirement decision

The tasks of financial management may be grouped on the basis of Liquidity, revenue, and management

1. Liquidity: It is discovered on the basis of three significant factors.
a) Forecasting cash flows, i.e., matching the inputs against cash outflows.

    b) Raising funds, i.e., the financial boss will have to discover the sources from which funds may be raised and the time when these funds are needed.

    c) Managing the flow of internal funds

    2. Profitability: While determining profitability, the following things are taken into consideration: into account.

    a) Cost control; b) Pricing; c) Forecasting future profits; d) Measuring the cost of capital

    3. Management: Asset management has taken on an important role in financial management. It includes: (a) The handling of long-term funds. (b) The handling of short-term cash.

    Apart from the above major tasks, the following subsidiary functions are also handled by the finance department:

    Here are some of the key perks of the modern method of financial management:


    Improved decision-making:
    The use of financial analysis and models can help financial managers make better choices about how to raise and distribute funds. This can lead to better financial performance for the business.

    Reduced risk: The discovery and control of financial risks can help minimize the chance of losses. This can protect the firm’s financial health and its ability to make income.

    Increased shareholder value: The focus on shareholder value can help ensure that the firm’s financial choices are matched with the interests of its owners. This can lead to higher capital returns and a more valuable company.

    The modern approach of financial management is a useful tool for companies of all sizes. By using financial analysis and models, finding and controlling financial risks, and focusing on shareholder value, firms can make better financial choices and improve their financial performance.

    Differences between modern approach and traditional approach of financial management:


    Here are some of the key difference between modern approach and traditional approach of financial management:


    Traditional method: The traditional approach to financial management is more focused on the short term. It is involved in raising funds to meet the day-to-day needs of the company.

    Modern method: The modern approach to financial management is more focused on the long run. It is concerned with raising funds to support the firm’s growth and revenue.

    Usual method: The usual approach to financial management is less scientific. It rests on more personal factors in decision-making.

    Modern method: The modern approach to financial management is more scientific. It leans on more numeric factors in decision-making.

    Standard method: The standard approach to financial management is less risk-averse. It is more willing to take on danger in order to achieve growth.

    Modern method: The modern approach of financial management is more risk-averse. It is more focused on reducing risk and increasing shareholder value.

    Below is a tabular representation of the key differences between the traditional approach and modern approach of financial management:

    AspectTraditional ApproachModern Approach
    FocusFinancial Reporting and AccountingStrategic Financial Planning
    ObjectiveCost ControlValue Creation
    Decision-makingStatic and Fixed BudgetsData-driven and Dynamic Decision-making
    Time HorizonShort-termLong-term and Sustainable
    CollaborationDepartmental SilosCross-functional Collaboration
    Risk ManagementCompliance-drivenRisk-focused
    ProcessesManualTechnology Integration
    MetricsFinancial MetricsESG Considerations
    Approach to GrowthLimited Growth PerspectiveEmphasis on Long-term Growth Strategies
    Use of TechnologyLimited Use of TechnologyLeveraging Advanced Analytics and AI
    Perspective on ValueEmphasis on Cost ReductionFocus on Value Maximization
    Financial PlanningRigid and Historical Data-basedReal-time Data Analysis and Forecasting

    The modern approach of financial management is a more advanced and thorough one that can help companies achieve their financial goals. It is a valuable tool for companies of all sizes, and it is becoming increasingly important in today’s complicated and volatile financial markets.

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