Here are some notes on the objectives of financial management in detail:
- The objectives of financial management are the goals that financial managers strive to achieve. These objectives can vary depending on the specific firm, but they typically include the following:
- Maximizing shareholder wealth. This is the primary objective of financial management. It is achieved by increasing the value of the firm’s stock.
- Minimizing risk. Financial managers must also try to minimize the risk of the firm’s operations. This is done by carefully managing the firm’s assets and liabilities.
- Ensuring liquidity. Liquidity refers to the ability of the firm to meet its short-term financial obligations. Financial managers must ensure that the firm has enough cash on hand to meet its obligations as they come due.
- Achieving the firm’s strategic goals. Financial management is also used to achieve the firm’s strategic goals. For example, a firm that is focused on growth may use financial management to raise capital for new investments.
- The financial manager is responsible for achieving the objectives of financial management. They do this by making decisions about the firm’s financial resources. These decisions include:
- Investment decisions. These decisions involve choosing which projects to invest in and how much to invest in each project.
- Financing decisions. These decisions involve choosing how to raise the funds needed to finance the firm’s investments.
- Dividend decisions. These decisions involve deciding how much of the firm’s profits to distribute to shareholders.
- The financial manager must also monitor the firm’s financial performance and make adjustments as needed. This is done by using financial statements and other financial tools.
The objectives of financial management are important because they provide a framework for making financial decisions. By understanding the objectives, financial managers can make decisions that are more likely to achieve the firm’s goals.