Finance: Art or Science ?Posted by Md.Salim Ansari
on Monday, January 18, 2010
Lawrence J. Gitman
has defined finance as 'an art and science of managing money'. It implies that finance is Both
art and science. Finance is a matured science since it provides knowledge as to how and at what time a firm should invest to outstrip other firms.
On the other hand, finance is also an art. In modern time, finance has become more analytical. The new financial
theories have been developed. Many data have been developed to prove these theories right or wrong. the financial mangers should examine the different
alternatives related to the raising and managing money. they should formulate the models to predict
the results obtained from the use of any one alternative.
In this way, the new theories, models and methods have
made finance scientific. But the financial
theories cannot be accurately compared with the 'Scientific Method' that applies to physics
science. Physics predicts as to what happens from an action. for example, physics says that if a ball is thrown upward, that eventually falls down. This is not true in finance. For example, the financial analyst can predict from the historical trend that the rate of interest will change in a definite pattern. But, in reality, the rate of interest may change in different pattern. Despite this, financial guidelines and theories are useful in financial decision
making. But any decision should be made by mixing those guidelines with self-skill. According to R.A. Stevenson, in modern time finance is a 'scientific art'. He opines 'finance is the science of knowing how to predict financial consequences and the art of knowing when to act'. It assists the financial managers of today to avoid the difficulties of tomorrow.