Goals of Financial Management Essay

Money required for carrying out patronage activities is called business finance. Almost all business activities require some finance. pay is needed To establish a business , To run it To modernize it To string out it or diversify It is required to buy whole variety of assets, they whitethorn be tangible wish machinery ,factories,building,offices or intangible like patents, practiced expertise etc. Success of business depends considerably on how get the immediate payment be deployed in assets Financial watchfulness is concerned with optimum procurement as well as usage of finance.The fiscal management has to take three important conclusiveness viz. (i) Investment decision i. e. , where to invest fund and in what amount, (ii) Financing decision i. e. , from where to raise funds and in what amount, and (iii) Dividend i. e. , how much to pay dividend and how much to retain for future expansion. In order to make these decisions the management must have a suck in understandin g of the intention sought to be achieved. It is generally agreed that the financial objective of the firm should be maximisation of owners economic welfare. in that location are two widely discussed approaches or criterion of maximise owners welfare (i) Profit maximization, and (ii) wealthiness maximization. Profit maximization would probably be the most commonly cited business destruction, but this is not a very(prenominal) precise objective. Do we esteem scratch this year? If so, thence actions much(prenominal) as deferring maintenance, letting inventories run down, and other short-run, cost-cutting measures allow tend to annex profits now, but these activities arent necessarily desirable.The goal of maximizing profits may refer to some sort of semipermanent or sightly profits, but its unclear exactly what this means. First, do we mean something like accounting net income or earnings per share? As we will see, these numbers may have little to do with what is good or b ad for the firm. Second, what do we mean by the long run? As a famous economist once remarked, in the long run, were all dead More to the point, this goal doesnt tell us the appropriate trade-off between current and future profits.Profit maximization Maximization of profits is very often considered as the main objective of a business enterprise. The shareholders, the owners of the business, invest their funds in the business with the commit of getting higher dividend on their investment. Moreover, the profitability of the business is an indicator of the sound health of the organization, because, it safeguards the economic interests of various social groups which are directly or indirectly connected with the company e. g. shareholders, creditors and employees.All these parties must get rational return for their contributions and it is possible only when company earns higher profits or sufficient profits to discharge the obligations to them. As long as we are dealing with for-profi t businesses, only a slight modification is needed. The total regard as of the stock in a corporation is simply equal to the observe of the owners equity. Therefore, a more general way of stating our goal . Finally, our goal does not imply that the financial manager should take illegal or wrong actions in the hope of increasing the value of the equity in the firm.What we mean is that the financial manager best serves the owners of the business by get winding goods and services that chip in value to the firm because they are desired and valued in the big marketplace If we assume that stockholders buy stock because they seek to gain financially, then the answer is obvious Good decisions increase the value of the stock, and poor decisions devolve the value of the stock. The goal of maximizing the value of the stock avoids the problems associated with the different goals we listed earlier.There is no ambiguity in the criterion, and there is no short-run versus long-run issue. We explicitly mean that our goal is to maximize the current stock value. Because the goal of financial management is to maximize the value of the stock, we need to learn how to identify those investments and financing arrangements that favorably impact the value of the stock. This is precisely what we will be saying. In fact, we could have defined corporate finance as the study of the relationship between business decisions and the value of the stock in the business. riches Maximization The term wealth means shareholders wealth or the wealth of persons who are involved in business concern. this is too known as value maximization or net price maximization The wealth maximization (also known as value maximization or Net Present Worth Maximization) is also universally accept criterion for financial decision making. The value of an asset should be viewed in terms of benefits it can produce over the cost of capital investment. Wealth maximization is based on the concept of cash flow . ca sh flow are a reality and not based on subjective. It considers time value of money.