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Changing business management needs

Offer evidence that supports the concept that finance, as a field of study, has evolved over time in response to changing business management needs.

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Evolution of Finance

Finance as a separate field from Accounting emerged from business combinations of 1900 in steel industries. These enterprises became big with complex decisions to be made and requirement for huge capital outlays. The combinations involved issuance of huge blocks of fixed-income and equity securities. Growth in technological innovations and creation of new industry resulted in further need of funds, prompting the study of finance to emphasise on liquidity and financing of the firm.
The depressions of the 30's meant firms had to concentrate on defensive aspect of survival preservation of liquidity and reconstruction. Business lacked funding, those institutions which were willing to lend required exorbitant interest rates. This time finance managers had a responsibility of ensuring that the enterprise was having optimal usage of funds, avoiding unnecessary expansion programmes and maintaining the loyalty of existing customers. Discovery of computer brought better, disciplined and fruitful analysis of financial performance. The 1990's saw the introduction of numerous financial instruments replacing hard cash as transfer of funds. The 2000's have brought globalisation through merger of firms, increase competition access to international markets and need for quality products.
Financial management is important in all types of businesses as well as government operations like hospitals and school. Financial managers are involved in decisions like, what product need expansion, where to obtain funding, make internally or sub contract.
A firm has a responsibility towards employees, shareholders, customers, creditors and society. Each of the stakeholders sees the role of enterprise in a different way. Sound financial management is necessary for the survival of an enterprise and its growth.

http://cbdd.wsu.edu/kewlcontent/cdoutput/TOM505/page29.htm

Published on Business Finance (http://businessfinancemag.com)
Finance in a Mercurial World

Created 04/01/2004 - 01:00

Economic and market volatility has reshaped the finance function and will define its tasks in the years ahead.
The U.S. economy's shallow recovery, ongoing globalization and heightened competition -- the broad economic forces that have shaped business conditions in recent years -- have left a permanent mark on finance. CFOs are now applying practices they once reserved for recessions across all phases of the business cycle. Consistently high levels of economic and market volatility have reshaped the finance function and ratcheted up the speed with which it must respond to change.
Only five years ago, the U.S. federal funds rate was 5 percent, unemployment was 4 percent, the federal government was running a surplus equal to 2 percent of GDP and the dollar reigned as the world's strongest currency. Today, the federal funds rate is 1 percent, unemployment is close to 6 percent, the federal government is running a deficit equal to 5 percent of GDP and the dollar is down nearly 10 percent against the world's major currencies.
U.S. corporations held four of the top five spots for multinationals ranked by foreign assets in 1999; today they hold only one. In 1999, more than $283 billion flowed into the United States in foreign direct investment; last year, the United States pulled in less than one-third of that amount.

Five years ago, the tech bubble was intact. U.S. GDP growth stood at 5 percent in 1999. A year later, growth was barely positive, and in the first quarter of 2001 GDP contracted, signaling the end of the boom years. The recovery that theoretically began at the end of 2001 remains weak, and volatility still reigns in the economy and the securities markets.
"The business cycle has required CFOs to focus on cost structures, expense management and product line/infrastructure rationalization," says David Odell, CFO of Hyperion Solutions Corp., the Sunnyvale, Calif.-based business performance management software provider. "Moving forward, a global economic recovery must be led by the United States."
Economic and market volatility has marked all phases of the business cycle for the past five years, however, and it will likely characterize ...

Solution Summary

Evolution of Finance

Finance as a separate field from Accounting emerged from business combinations of 1900 in steel industries. These enterprises became big with complex decisions to be made and requirement for huge capital outlays. The combinations involved issuance of huge blocks of fixed-income and equity securities. Growth in technological innovations and creation of new industry resulted in further need of funds, prompting the study of finance to emphasise on liquidity and financing of the firm.

The depressions of the 30's meant firms had to concentrate on defensive aspect of survival preservation of liquidity and reconstruction. Business lacked funding, those institutions which were willing to lend required exorbitant interest rates. This time finance managers had a responsibility of ensuring that the enterprise was having optimal usage of funds, avoiding unnecessary expansion programmes and maintaining the loyalty of existing customers. Discovery of computer brought better, disciplined and fruitful analysis of financial performance. The 1990's saw the introduction of numerous financial instruments replacing hard cash as transfer of funds. The 2000's have brought globalisation through merger of firms, increase competition access to international markets and need for quality products.

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