Answer:
Financial
Management:
Defination:
Financial management is concerned
with the acquisition, financing, and management of assets with some overall
goal in mind. Thus, the decision function of financial management can be broken
down into three major areas: the investment, financing, and asset management
decisions.
Meanings:
Financial
management may be defined as planning, organising, directing and controlling
the financial activities of an organisation. According to Guthman and Dougal,
financial management means, “the activity concerned with the planning, raising,
controlling and administering of funds used in the business.” It is concerned
with the procurement and utilisation of funds in the proper manner.
In order to maximise wealth, financial management
must achieve the following specific objectives:
Ø To
ensure availability of sufficient funds at reasonable cost (liquidity).
Ø To
ensure effective utilisation of funds (financial control).
Ø To
ensure safety of funds by creating reserves, re-investing profits, etc.
(minimisation of risk).
Ø To
ensure adequate return on investment (profitability).
Ø To
generate and build-up surplus for expansion and growth (growth).
Ø To
minimise cost of capital by developing a sound and economical combination of
corporate securities (economy).
Ø To
coordinate the activities of the finance department with the activities of
other departments of the firm (cooperation)
Goals
of Firm:
Ø Value Creation
Value creation is the primary
objective of any business entity. It is obvious that most successful
organisations understand that the purpose of any business is to create valuefor its customers, employees,
investors as well as its shareholders. Profit maximization and increase earning
per share is the primary goal of firm.
Ø Agency Problems
In
corporate finance, the agency
problem usually refers to a conflict of interest between a company's management and the company's stockholders. The
manager, acting as the agent for
the shareholders, or principals, is supposed to make decisions that will
maximize shareholder wealth. the management try to make good relations with
shareholders and make good decisions that maximize shareholder wealth.
Ø Corporate Socail
Responsibility
Corporate
social responsibility (CSR) is a business outlook that acknowledges a firm’s
responsibilities to its stakeholders and the natural environment. These
stakeholders include creditors, employees, customers, suppliers, communities in
which a company operates, and others.
“Corporate Social Responsibility (CSR) is the responsibility of an
organization for the impacts of its decisions and activities on society, the
environment and its own prosperity, known as the “triple bottom line” of people,
planet, and profit.”
Ø Long Term Survival:
According
to Rothschild, main objective of a firm is to obtain the stage of long-run
survival. A firm having this aim is always reviewed cautiously and all of its
decisions are safety-oriented. Such firms do not like to reap larger profits in
short-run but prefer lower profits in the long run.
Ø Sale Maximisation Objective:
Sales
maximisation as an alternative goal to profit maximisation. The firm offers
several justifications of sales maximisation as a goal of the firm. Here, sales
maximisation means maximisation of the money value of sales. The objective of a
firm is one of constrained maximisation where the firm maximises total revenue
subject to a minimum profit constraints.
Ø Stakeholder Theory:
Stakeholder theorists believe that
people who have legitimate interests in a business also ought to have voice in
how the business is run. However, stakeholder theorists take contract theory a
step further, maintaining that people outside of the business enterprise ought
to have a say in how the business operates. Thus, for example, consumers, even
community members who could be affected by what the business does (for example,
by the pollutants of a factory) ought to have some control over the business.
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