What are Objectives of Financial Management? with Describe Definition, Meaning, Nature and Scope!
Financial management is one of the functional areas of business. Therefore, its objectives must be consistent with the overall objectives of the business. The overall objective of financial management is to provide maximum return to the owners on their investment in the long- term. This is known as wealth maximization. Maximization of owners’ wealth is possible when the capital invested initially increases over a period of time. Wealth maximization means maximizing the market value of investment in shares of the company. Also learn, Definition with What are Objectives of Financial Management?
Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. In simple terms objective of Financial Management is to maximize the value of the firm, however, it is much more complex than that. The management of the firm involves many stakeholders, including owners, creditors, and various participants in the financial market.
Effective procurement and efficient use of finance lead to proper utilization of the finance by the business concern. It is the essential part of the financial manager. Hence, the financial manager must determine the basic objectives of the financial management. How to Explain Nature and Scope of Financial Management?
Objectives of Financial Management explain to the Simple point
- Profit maximization happens when marginal cost is equal to marginal revenue. This is the main objective of Financial Management.
- Wealth maximization means maximization of shareholders’ wealth. It is an advance goal compare to profit maximization.
- Survival of company is an important consideration when the financial manager makes any financial decisions. One incorrect decision may lead the company to be bankrupt.
- Maintaining proper cash flow is a short run objective of financial management. It is necessary for operations to pay the day-to-day expenses e.g. raw material, electricity bills, wages, rent etc. A good cash flow ensures the survival of the company.
- Minimization on capital cost in financial management can help operations gain more profit.
- It is vague:- There are several types of profits before interest, depreciation and taxes, profit before taxes, profit after taxes, cash profit etc.