Question

Modern approach of financial management is

• A. Acquisition of funds
• B. Utilisation of funds
• C. Distribution of funds
• D. All of these

Hint:

Remember: Traditional FM = "How to get the money?". Modern FM = "How to get the money, how to use it wisely, and how to share the profits?".

Answer 1

The Correct Option is D

Step 1: Understanding the Question:
The question asks to identify the scope of the modern approach to financial management.
Step 2: Key Concept:
The approach to financial management has evolved over time. The 'Traditional Approach' was narrow, while the 'Modern Approach' is much broader and more analytical.
- Traditional Approach: Focused primarily on the procurement or acquisition of funds from various sources. It was an 'outsider-looking-in' perspective.
- Modern Approach: Takes a much more comprehensive view. It is concerned not only with raising funds but also with their effective allocation and use.
Step 3: Detailed Explanation:
The modern approach of financial management encompasses three major decisions:
1. Financing Decision (Acquisition of funds): This involves determining the best mix of debt and equity to raise the required capital (capital structure decision).
2. Investment Decision (Utilisation of funds): This involves allocating the acquired funds to profitable investment projects (capital budgeting) and managing working capital efficiently.
3. Dividend Decision (Distribution of funds): This involves deciding how much of the profit to distribute to shareholders as dividends and how much to retain for future growth.
Since the modern approach includes the acquisition, utilisation, and distribution of funds, the correct answer is (D) All of these.
Step 4: Final Answer
The modern approach of financial management is comprehensive and includes the acquisition, utilisation, and distribution of funds.