Financial Management indicates organizing, planning, controlling, and directing the financial activities like procurement and utilization of funds of the enterprise. It means applying general management values to financial resources of the organization. In short, objective of Financial Management is to make the most of the value of organization, however it is much more complicated than that. The management of the firm includes several stakeholders, including creditors, owners, and several participants in the financial market.
Joseph Stone Capital talks about the objectives of financial management
- Wealth maximization is the main objective of financial management. Wealth maximization means to earn maximum wealth for the shareholders. Thus, the finance manager tries to offer a maximum dividend to the shareholders. The market value of the shares is directly related to the performance of the company. Better the performance more is the market value of shares. So, the finance manager should try to maximize shareholder’s value.
- Main aim of any economic activity is earning profit. A business concern is also functioning primarily for the purpose of earning profit. Profit is the measuring methods to understand the business efficiency of the concern. The finance manager aims to earn maximum profits for the company in the long-term and the short-term. He cannot guarantee profits in the long term due to business uncertainties.
- Mobilization of finance is an essential objective of financial management. After estimating the financial necessities, the finance manager should decide about the sources of finance. He can gather finance from several sources such as debentures, shares, bank loans, etc. There should be a proper balance between borrowed and owned finance. The company should borrow money at a low interest rate.
- Appropriate estimation of total financial necessities is a very significant objective of financial management. The finance manager should estimate the total financial requirements of the company. He should find out how much finance is necessary to start and run the company. He must find out the fixed capital and working capital necessities of the company. Estimating the financial requirements is a very challenging job. The finance manager should consider many factors, such as the kind of technology used by company, number of employees employed, scale of operations, legal necessities, etc.
Joseph Stone Capital believes that maintaining proper cash flow is a short-term objective of financial management. The company should have a proper cash flow to pay the everyday expenses such as purchase of raw materials, payment of salaries and wages, electricity bills, rent, etc. If the company has a good cash flow, it can take benefit of several opportunities such as getting cash discounts on purchases, offering credit to customers, large-scale purchasing, etc. A healthy cash flow enhances the chances of survival and success of the company.
