Finance and Accounting for Nonfinancial Managers: All the Basics You Need to Know

By William G. Droms | Go to book overview

1
Contemporary Financial
Management

EVOLUTION OF THE FINANCE FUNCTION

The field of financial management has experienced gradual but significant change during the twentieth century. During the first two decades of the century, financial managers were concerned mostly with the legal issues surrounding the issuance of stocks and bonds. This focus of attention reflected the primitive nature of the capital markets in the early 1900s, the wave of mergers and consolidations occurring at that time, and the lack of what now is considered routine full disclosure of accounting and financial information about companies offering securities to the public. With the Depression of the 1930s, the main focus of financial management shifted to the defensive aspects of business survival.

The early post- World War II period marked the beginning of the transition to the current emphasis on analyzing the financial implications of business decisions and maximizing the value of the firm. In the 1970s and 1980s, experience with rapid inflation and high interest rates focused increased attention on the financial implications of long-term investment decisions. In 1974, the annual rate of increase in the Consumer Price Index hit double digits (12.2 percent) for the first time since the temporary inflationary surge following the end of World War II. Although double-digit inflation has not been seen again since 1979 and 1980 (13.3 and 12.4 percent, respectively), coping with the impact of inflation and managing the cost of capital continue to be important responsibilities of contemporary financial managers.

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