Part of effective strategic financial management may thus involve sacrificing or readjusting short-term goals in order to attain the company's long-term objectives more efficiently. For example, if a company suffered a net loss for the previous year, then it may choose to reduce its asset base through facility closures or staff reductions, thereby decreasing its necessary operating expenses. Taking such steps may result in restructuring costs or other one-time items that negatively affect the company's finances further in the short term, but they put the company in a better overall position to move toward its long-term goals.
What are the goals of Financial Management? Article shared by What are the goals of Financial Management?
The financial management has to take three important decision viz. In order to make these decisions the management must have a clear understanding of the objective sought to be achieved.
It should be noted here that objective is used in the sense of goal or goals or decision criterion for the three decisions involved. Maximization of profits is very often considered as the mainobjective of a business enterprise.
The shareholders, the owners of the business, invest their funds in the business with the hope of getting higher dividend on their investment. Moreover, the profitability of the business is an indicator of the sound health of the organisation, because, it safeguards the economic interests of various social groups which are directly or indirectly connected with the company e.
All these parties must get reasonable return for their contributions and it is possible only when company earns higher profits or sufficient profits to discharge the obligations to them.
The wealth maximization also known as value maximization or Net Present Worth Maximization is also universally accepted criterion for financial decision making.
The value of an asset should be viewed in terms of benefits it can produce over the cost of capital investment. Wealth or net amount of capital investment required to achieve the benefits being discussed.
Any financial action which creates wealth or which has a net present worth above zero is a desirable one and should be undertaken.
Any financial action which does not meet this test should be rejected. If two or more desirable courses of action are mutually exclusive i.
In short, the operating objective for financial management is to maximize wealth or net present worth. Thus, the concept of wealth maximization is based on cash flows inflows and outflows generated by the decision.
If inflows are greater than outflows, the decision is good because it maximizes the wealth of the owners. We have discussed above the two goals of financial management. Now the question is which one is the best or which goal should be followed in decision making.
Certain objections have been raised against the profit maximization goal which strengthen the case for wealth maximization as the goal of financial decisions.Boston Financial Management provides wealth management and investment advisory services for individuals, families, endowments, and non profits.
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