Business finance has changed over the years. One of the main differences is that large enterprises have been formed by consolidating a number of smaller businesses. A lot of emphasis has been placed on looking at the sources of financing these new giant companies, and they cover all of the different aspects.
Early Business Finance
In the 1920s, there were a number of new industries, including radio, steel, automobile, and chemical companies. In addition, national advertising was born, which helped to improve distribution practices and allowed for high profit margins. The 1930s brought recession, which showed a lack of liquidity. It was difficult for business people to get funding from banks or other institutions. Their only option was to liquidate their inventory, and if it didn’t yield enough, they wouldn’t survive.
The problems in the 1930s led to greater planning for businesses, including liquidity and sound financial practices. The focus was on protecting the business from bankruptcy and liquidation. The primary emphasis in business finance was on major financial episodes in the company’s life cycle.
Post World War II
After World War II, businesses had to transition from wartime economy to a peace economy, and this continued for a while. Finance was mostly about choosing financial structures that can handle the changes that come when a war ends.
In the 1950s, the economy saw a few different things. Business activities were moving forward, but the stock market and money market conditions were tight. Business finance shifted from focusing on profit potential to cash flow generation. The finance managers were in charge of making sure that the cash flow was acceptable and the day-to-day financial operations could move forward. This change marked a shift toward cash budget techniques and inventory control along with aging receivables. This change lasted for years with many debates over the cost of capital, optimal capital structure, and market values.
1960s and 1970s
In the 60s and 70s, there was a return to concern for liquidity and profit margins. Finance managers during that time began looking at stock prices and the empirical efficiency of business sales. Although business finance had previously been focused on periodic or episodic events, it began to include day-to-day operations of financial management as well.