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? ›
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 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.
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 is financial management in simple words? ›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 5 types of financial management with examples? ›- 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.
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 is the finance function and its objectives? ›The finance functions within an organization are responsible for managing financial resources and ensuring the company's financial health. They involve various activities such as financial planning, budgeting, forecasting, financial analysis, accounting, and reporting.
What is the main goal of the financial manager? ›The main goal of the financial manager is to maximize the value of the firm to its owners. The value of a publicly owned corporation is measured by the share price of its stock.
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.
Some of the key elements of the financial plan are budgeting, insurance coverage, tax planning, debt management, long-term savings, etc. What is the objective of a financial plan? The objective of a financial plan is to provide a roadmap to manage your financial resources to achieve your financial goals in future.
What does financial management mainly focus on? ›
Key Points Financial management primarily focuses on managing the financial resources of a company efficiently to achieve its financial goals and objectives. It involves various activities such as financial planning, budgeting, investment decisions, financing decisions, and risk management.
Why is financial management important? ›Importance of Financial Management
It helps a business to organize its finances and acquire the necessary capital. It is crucial for efficient and effective use of borrowed money. Businesses need financial management to make financial decisions.
The term financial management means obtaining and managing funds. And the primary objective of financial management is to increase the firm's value. So, what is the concept of financial management? There are two basic concepts of financial management, obtaining funds and utilising these funds.
What is the main function of financial management? ›Financial management is concerned with management decisions relating to optimal procurement of funds, investment of funds in long term and short term assets of the firm. It is wider in scope as it includes financial planning also.
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 is the number one rule of personal finance? ›#1 Don't Spend More Than You Make
When your bank balance is looking healthy after payday, it's easy to overspend and not be as careful. However, there are several issues at play that result in people relying on borrowing money, racking up debt and living way beyond their means.
The five key functions of a financial system are: (i) producing information ex ante about possible investments and allocate capital; (ii) monitoring investments and exerting corporate governance after providing finance; (iii) facilitating the trading, diversification, and management of risk; (iv) mobilizing and pooling ...
What are the 4 roles and functions of a financial manager? ›Key responsibilities of a finance manager
Drive the continuous improvement of end-to-end accounting practices. Prepare and post monthly accruals, prepayments and similar accounting entries. Budgeting and forecasting. Leading the analysis of monthly and quarterly numbers and presenting findings to the board.
What are the five A's of financial management? The five A's of financial management are assessment, analysis, allocation, adjustment, and accountability.