Q. Limitations of Traditional Approach in financial management?
Limitations of Traditional Approach: - The traditional approach continued till mid 1950's. It has at the present been discarded as it suffers from the following limitations:
(i) More Emphasis on Raising of Funds: - This approach places more importance on procurement of funds from external sources and neglects the issues relating to the efficient utilization of funds. Since it is concerned with the increasing of funds it attaches more importance to the viewpoint of external parties who provide funds to the business as well as completely ignores the internal persons who make financial decisions.
(ii) Disregard the Financial Problems of Non-Corporate Enterprises: - It places more importance on the problems faced by corporate enterprises in procuring the funds. The non-corporate enterprise like solitary proprietorship and partnership firms are considered outside its scope.
(iii) Disregard Routine Problems: - This approach focus on the financial problems on the occurrence of special events such as incorporation, merger etc and fails to consider the day-to-day financial problems of a normal firm.
(iv) Disregard Working Capital Financing: - This approach gives more importance on the problems relating to long term financing as well as the problems relating to working capital financing are considered outside the purview of this approach.