OBJECTIVES OF FINANCIAL MANAGEMENT

MEANING AND DEFENITION OF FM

The meaning of financial management has external simplicity and internal complexity. It can be understood to mean managing the finance of an organization. The complexity arises in identifying activities that are involved in the process. Ezra Solomon has given a simple definition of FM is concerned with the efficient use of an important economic resource viz., capital fund

OBJECTIVES OF FM
Profit maximization

Wealth maximization
Adding to share holders value Corporate governance.

PROFIT MAXIMIZATION
The basic objective of every business enterprise is welfare of its owners. It can be achieved by maximization of profits. There fore the financial decision of a firm should be oriented to the maximization of profits. Profit maximization as an objective of FM can be justified on the following grounds: Rational Test of business performance Main source of inspiration Maximum social welfare Basis of decision making

CRITISISMS:

The term profit is vague

Ignore time value of money Ignores risk

Ignores social responsibility

WEALTH MAXIMIZATION
It is also called as value maximization. Wealth maximization means to maximize the net present value of a course of action. The NPV is the difference between the gross present value of the benefits of that action and the amount of investment required to achieve those benefits. Wealth maximization objective is consistent with the objective of maximizing the wealth of owners by increasing value of the firm.
It recognizes time value of money It measures income in terms of cash flows It analyses risk Not in conflict with other motive ( market share & sales maximization)

IMPARTING SUFFICIENT LIQUIDITY:

The organization should never run short of cash. Every part of the organization should be supplied with the cash needed. The ability of an organization to pay the expenses and other commitments decides the image of the firm. A better image always help the firm to get better deals from suppliers and others.
However profit maximization and ensuring liquidity is a contrary objective. In ever decision increase in profit will lead to decrease in liquidity and vice versa. Carrying more cash increases liquidity but reduce profitability.

CORPORATE GOVERNANCE:
Every organization should operate in such a way that it does not make any of the stakeholders suffer from its actions or decisions. Though the definition of corporate governance include all these stakeholders, measuring the level of governance is difficult when such governance includes all the stake holders . Ther4 many shareholders and their interest are considered to verify the level of cg of a corporate