Financial Management Both Economics and Essay

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The ratios that derive from the financial accounting statements are used frequently in finance to determine the health of a company (Russo, n.d). When a lender wants to know what interest rate to charge a borrower, it looks at the liquidity and solvency ratios of the company to determine the likelihood of default, and assigns the interest rate based on that analysis. This is just another example of how the information that accountants compile and audit is used in financial management.

The same can be said for the investments side of finance. For example, when one wants to invest in a company, or in derivatives relating to that company, accounting information is critical. Usually this is financial accounting information, but if managerial accounting data can be found then that is also sometimes used. Formulas such as Black-Scholes are used to value derivate holdings of companies for the production of financial accounting statements, further highlighting the link between finance and accounting in the field.

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With the same concepts relating to each discipline, and the use of skills from each discipline to enhance the work in the other disciplines, it is clear that there is a high degree of interrelationship between finance, economics and accounting. When studying finance, it is essential therefore to have a background and working knowledge of both economics (macro and micro) and accounting (financial and managerial). Without this working knowledge, a finance student or finance manager will not be nearly as effective in his or her performance of duties. Thus, one must gain a background in economics and accounting in order to become more skilled at finance.

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