That is, the perspective of finance changed from reporting only to outsiders to that of an insider charged with the management and control of the firm’s financial operations.
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At the turn of the twentieth century financial topics focused on the formation of new companies and their legal regulation and the process of raising funds in the capital markets.
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Typical Finance Structure
Chief Financial Officer
Chief ccountant
Corporate Treasurer
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Corporate treasurer is in charge of raising funds, managing liquidity and banking relationships and controlling risks.
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• Interest in these topics grew and in turn spurred interest in security analysis, portfolio theory and capital structure theory.
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The company’s secretary was in charge of raising funds and producing the annual reports, as well as the accounting function.
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Early 20th century:
Concentrated on reporting to outsiders.
Early 21st century:
Insiders managing and controlling
the firm’s financial operations.
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chapter 1 & 3 Scope and environment of
financial management
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Development of Financial Management
Profit maximisation functions largely as a theoretical goal.
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Chief accountant is also called financial controller, whose responsibilities include financial reporting to outsiders as well as cost and managerial accounting and financial analysis on behalf of the firm’s managers.
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After World War Ⅱ the emphasis of corporate finance switched from financial accounting and external reporting to cost accounting and reporting and financial analysis on behalf of the firm’s managers.
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Business failures during the Great Depression of the 1930s helped change the focus of finance.
Increased emphasis was placed on bankruptcy, liquidity management and avoidance of financial problems.
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• Capital budgeting became a major topic in finance.
• This led to an increased interest in related topics, most notably firm valuation.
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Financial Goal of the Firm
Profit maximisation?
In microeconomics courses profit maximisation is frequently given as the financial goal of the firm.