Financial Management Objective

Financial management is an essential aspect of any business, and the financial manager plays a critical role in ensuring that the company's financial resources are used effectively. The primary objective of financial management is to maximize profits, which is achieved by increasing revenue and reducing costs. The financial manager is responsible for making financial decisions that facilitate the achievement of this objective.

Maximizing Shareholder Wealth

Maximizing shareholder wealth is another objective of financial management. This objective is achieved by increasing the value of the company's stock and paying dividends to shareholders. The financial manager must ensure that the company's financial decisions are consistent with this objective.

Comparison of Objectives

While maximizing profits and maximizing shareholder wealth are both objectives of financial management, they are not exclusive. Maximizing profits may not always result in an increase in shareholder wealth. For example, the financial manager may decide to reduce costs by laying off employees, which may increase profits but can negatively impact employee morale and lead to a decrease in the company's stock value.

On the other hand, decisions that increase shareholder wealth may not always result in an increase in profits. For example, the financial manager may decide to invest in research and development to develop new products, which may not generate profits in the short term but can increase the company's stock value in the long term.

Role of Financial Manager

The financial manager plays a critical role in balancing the objectives of maximizing profits and maximizing shareholder wealth. They must make financial decisions that are consistent with both objectives while considering the impact of these decisions on other stakeholders, such as employees, customers, and the community.

The financial manager must also consider the company's long-term goals and sustainability. They must ensure that the company's financial decisions are not only beneficial in the short term but also sustainable in the long term.

Conclusion

In conclusion, the financial manager's role is crucial in achieving the objectives of financial management. While maximizing profits and maximizing shareholder wealth are both important, they are not exclusive. The financial manager must make financial decisions that are consistent with both objectives while considering the impact of these decisions on other stakeholders and the company's long-term goals and sustainability.