A.

Evolution of financial management

1900-1930: When managerial finance emerged as a separate

field of study, the emphasis was on legal aspects of
mergers, the formation of new firms and the various types of
securities firms could issue to raise funds. During the
Depression era, business failures caused the emphasis in
managerial finance to shift to bankruptcy and
reorganization, corporate liquidity and regulation of
security markets. During this period, new rules were enacted
and required firms to maintain and publicly disclose certain
financial information.

Kinds of mergers

a. Conglomerate merger – combines firms in different

industries
b. Horizontal merger – combines firms operating in the same
business line
c. Statutory merger – a combination of two or more firms in
which one company survives under its own name while the
other cease to exist as legal entities.
d. Vertical merger – combines firms that have same
customer/supplier relationship

1940-1950: Finance continued to be taught as a descriptive,

institutional subject viewed more from standpoint of an
outsider than from the perspective of management. Financial
manager emphasized liquidity – that is cash budgeting and
management of short-term assets and liabilities were
stressed and the scope of financial management began to
widen primarily because the responsibilities associated with
proper liquidity management included knowledge of accounts
receivables activities, manufacturing operations and short-
term financing activities.

1950-1960: Increased competition in established industries

reduced profit opportunities available to corporations.
Financial managers shifted their focused toward techniques
used to evaluate investment opportunities. Emphasis was
given to finding investments that would improve the firm’s
ability to generate profits in the future. A movement toward
theoretical analysis began, and the emphasis of managerial
finance shifted to managerial decisions regarding the choice
of assets and liabilities necessary to maximize the value of
the firm. This era is considered the birth of modern finance
from which many of the decision making techniques are used
today.

1970: marked by increased international competition, fast-

paced innovation and technological changes. Persistent
inflation and economic uncertainty fuelled by deficits in
government spending and in international trade. Changes in
the business arena saw the beginning of a financial
revolution. Firms discovered innovative ways to manage
financial risk and finance their activities.

1980: The focused on valuation continued:

a. Inflation and its effects on business decisions
b. Deregulations of financial institutions and the
resulting trend toward large, broadly diversified
financial services companies
c. Dramatic increase in both the use of computers for
analysis and the electronic transfer of information
d. The increase importance of global markets and
business operations
e. Innovations in the financial products offered to
investors

1990: In today’s fast-paced technological driven world, the

area of managerial finance continues to evolve. Mergers and
acquisitions remain an important part of the financial
world.
The important trend in the new millennium includes:
a. Continued globalization of business
b. Ongoing adoption of electronic technology
c. Regulatory attitude of the government