Academic Resource Related to Financial Management Course

Goals of Financial Management

Goals act as motivators, serve as the standards for measuring performance, help in coordination of multiplicity of tasks, facilitate in identifying inter departmental relationships and so on. The goals can be classified as official goals, operative goals. The official goals are the general objective of any organization.They include mechanism of Return On Investment (ROI) and market value of the firms.The operative goals indicate the actual efforts taken by an organization to implement various plans, policies and norms.

Profit Maximization:

The objective of financial management is to earn maximum profits. The main objective of Organization is to earn large amount of profit. Various important decisions are taken to maximize the profit of the firm. Profit maximization as an objective of financial management results in efficient allocation of resources. In the words of Peter Drucker

    • profits indicate the effectiveness of business profits
      • they provide the premium to cover costs of staying in business
     • they ensure supply of future capital.

Wealth Maximization:

It simply means maximization of shareholder’s wealth. The main objective of Organization is to improve the market value of its shares. The objective of wealth maximization of shareholders considers all future cash flows, risk of a decision, etc. This goal directly affects the policy decision of the firm about what to invest in and how to finance these investments. Shareholders are always interested in maximization of wealth which depends upon the market price of the shares