Objective of financial management
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The document discusses the objectives of profit maximization and wealth maximization. Profit maximization refers to maximizing the net profits earned by an organization within a given time period, which then goes to shareholders as dividends. Wealth maximization, also called value maximization, means maximizing the net present worth or value of a business by ensuring the difference between gross present benefits and capital investment is highest. Other objectives of businesses include ensuring fair returns to shareholders, building reserves for growth, maximizing operational efficiency, and maintaining financial discipline.
Objective of financial management
- 2. Basic Objectives Other objectives
- 3. Profit Maximization Wealth maximization
- 4. Profit maximization is a term which denotes profit to be earned by the organization in a given time period. The term profit can be used in two senses once is the owner oriented concept and other as the operational concept. Profit in the owner oriented concept refers to the amount of net profit which goes in the form of dividend to the shareholders. Profit in the operational concept means profitability which is an indicator of economic efficiency of the enterprise.
- 5. Wealth Maximization is also called Value Maximization The wealth or net present worth of course of action is the difference between gross present worth and the amount of capital investment required to achieve the benefits. Gross present worth represents the present value of expected cash benefits.
- 6. Ensuring a fair return to shareholders Building up reserves for growth and expansion. Ensuring maximum operational efficiency by effective and efficient utilization of finance. Ensuring financial discipline in management.