The paramount objective of the financial management is maximising the shareholders' wealth. That is, the basic objective of financial management for a company is to opt for those financial decisions that prove gainful from the point of view of the shareholders. The share holders are said to gain when the market value of their shares rise. The market value of shares increase when the benefits from a financial decision exceed the cost involved in taking them. In other words, a financial decision raises the market value of share if it results in some value addition. Thus, financial decisions should be taken such that some value addition takes place and ultimately the price of the equity share increases. When a financial decision is able to fulfil the primary objective of wealth maximisation, other objectives such as proper utilisation of funds, maintenance of liquidity etc. are automatically fulfilled.
FAQs
What are the main objectives of financial management? Briefly explain? ›
Objectives of Financial Management
What are the main objectives of financial management? ›The paramount objective of the financial management is maximising the shareholders' wealth. That is, the basic objective of financial management for a company is to opt for those financial decisions that prove gainful from the point of view of the shareholders.
What are the financial objectives? ›A financial objective is a goal that businesses set for financial success and growth. A company's financial objectives can vary depending on multiple factors, such as the type of products and services it offers, how it operates and what its current requirements are.
What are the main functions of financial management? ›- Estimation of the capital required. ...
- Determination of the capital structure. ...
- Choice of the source of funds. ...
- Procurement of financial resources. ...
- Utilisation of funds. ...
- Disposal of surplus funds or profits. ...
- Management of cash. ...
- Financial control.
- Working capital management. This focuses primarily on day-to-day operations, such as making sure there's enough money to pay employees or buy raw materials. ...
- Revenue cycle management. ...
- Capital budgeting. ...
- Capital structure.
Financial accounting's primary goal is to generate financial reports that convey information about a company's performance to external parties such as investors, creditors and more. How do you keep your accounting records accurate? There are various methods for keeping accurate records.
What are the main characteristics of financial management? ›- Manages all the financial resources.
- It is a continuous function.
- Proper utilisation of the funds.
- Maintains balance between risk and profitability.
- Facilitates cost control.
- Involves analytical thinking.
- Coordination between the various processes.
The financial system of a country mainly aims at managing and governing the mechanism of production, distribution, exchange and holding of financial assets or instruments of all kinds.
What is the primary objective of the financial manager? ›Financial managers perform data analysis and advise senior managers on profit-maximizing ideas. Financial managers are responsible for the financial health of an organization. They create financial reports, direct investment activities, and develop plans for the long-term financial goals of their organization.
What is the main objective of the financial statements? ›"The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an enterprise that is useful to a wide range of users in making economic decisions." Financial statements should be understandable, relevant, reliable and comparable.
What are the three major decisions in financial management? ›
There are three primary types of financial decisions that financial managers must make: investment decisions, financing decisions, and dividend decisions.
What is the importance of financial management? ›It provides a defined picture of a company's financial health and ability to cover operational costs, debt payments, and future growth opportunities. Proper cash flow management gives businesses enough working capital to meet short-term obligations such as payroll, rent, and inventory purchases.
What is financial management in simple terms? ›Financial management is all about monitoring, controlling, protecting, and reporting on a company's financial resources. Companies have accountants or finance teams responsible for managing their finances, including all bank transactions, loans, debts, investments, and other sources of funding.
What are the objectives of financial management? ›Financial management is the discipline that deals with the planning, growth, and systematic usage of funds. The objectives of financial management include oversight over revenues and expenditures as well as managing risk and capital.
What does financial management mainly focus on? ›Financial Management is a study of planning, designing, directing and managing the economic activities such as the utilization of capital and acquisition of the firm. To put it in other words, it is applying general management standards to the financial resources of the firm.
What are the 4 C's of financial management? ›As owners of FP&A processes, today's accounting teams must be well-versed in the four C's of financial planning: context, collaboration, continuity, and communication. Today, financial planning and budgeting are more important than ever.
What are the 4 main business objectives? ›The four main business objectives are economic, social, human, and organic. Each can help a business ensure their prolonged health and growth. For example, human objectives refer to employees' well-being, while economic objectives refer to the company's financial health.
What is the main objective of financial management is profit maximization? ›What is Profit Maximization in Financial Management? Profit maximization in financial management is the primary objective of every business. It involves careful decision-making and resource allocation to increase overall profits, with a specific focus on improving earnings per share.
What are the objectives of the finance function? ›The objectives of the financial function include making profit, generating cash flow, ensuring payability, collecting and using financial resources, and managing the company's financial policy .