1.Profit maximization.
Profit maximization is considered as the major goal of financial management. In this approach, actions that Increase profits should be undertaken and the actions that decrease the profits are avoided. Thus, the Investment, financing and dividend also be noted that the term objective provides a normative framework decisions should be oriented to the maximization of profits.
2. Return Maximization.
The second goal of financial management is to safeguard the economic interest of the persons who are directly or indirectly connected with the company, i.e. shareholders, creditors and employees. The all such interested parties must get the maximum return for their contributions. But this is possible only when the company earns higher profits or sufficient profits to discharge its obligations to them. Therefore, the goals of maximization of returns are inter-related.
3. Goal of Wealth Maximization.
Wealth maximization decision criterion is also known as Value Maximization or Net Present-Worth maximization. In the current academic literature value maximization is widely accepted as an appropriate operational decision criterion for financial management decision. It removes the technical limitations of the profit maximization criterion. It posses the three requirements of a suitable operational objective of financial courses of action. These three features are exactness, quality of benefits and the time value of money.
4. Rising of funds.
The traditional approach dominated the scope of financial management
and limited the role of the financial manager simply to raising funds. The approach has been criticized because it failed to consider the day to day managerial problems relating to finance of the firm. It lacked a conceptual framework for making financial decisions, misplaced emphasizes on rising of funds and neglected the real issues relating to the allocation and management of funds.
5. Allocation of funds
The traditional approach outlived its utility in the changed business situation since the mid1950s. A number of economic and environmental factors, such as the increasing pace of industrialization, technological innovations and inventions, intense competition, increasing intervention of government on account of management inefficiency and failure, population growth and widen markets during and after mid-1950s necessitated efficient and effective utilization of the firm resources. In this regards, the emphasis shifted from the episodic financing to the managerial financial problems, from rising of fund to efficient
and effective use of funds. The new or modern approach is an analytical way of looking into the financial problems of the firm. In his new role, the financial manager must answer the following questions: How large should an enterprise bean how fast should it grow? In what form should it hold its asset? How should the funds required be raised?
6. Profit planning
The term profit planning refers to the operating decisions in the area of pricing, costs, volume of output and the firm selection of product lines. It is therefore a pre-requisite for optimizing investment and financial decisions. The cost structure of the firm i.e. the mix of the fixed and variable costs has significant o a firm's profitability. Profit planning helps to anticipate the relationships between volume, costs and profits and develop action plans to face unexpected surprises.
7. Understanding capital markets
Financial manager should fully understand the operations of capital markets and the way in which securities are traded. He or she must also understand how risk is measured in capital markets and how to cope with it as investment and financing decisions often involve considerable risk. For example if a firm uses excessive debt to finance its growth, investors may perceive it as risky. As a result the firm's share may decline.
Lellah answered the question on November 8, 2021 at 05:56