Term paper on The goals of financial management

Financial Management can be defined as management of financial resources and financial activities of the business entity, aimed at the realization of strategic goals and tactical objectives. (Bose 2008)

From theoretical point of view financial management is a system of knowledge, concepts, models and developed on their basis methods, techniques, tools used in decision-making. From a practical point of view financial management can be considered as a system of management of financial resources of the company. Theory and practice of financial management are in continuous development in response to various changes in the economic sphere. (Brigham and Houston 2009)

In the long term the goal of financial management should comply with the overall strategy of the company, ensure its implementation. The traditional management objectives include:
– maximization of profit;
– maintaining financial stability;
– maximizing the volume of sales of goods and services. (Bose 2008)

In the classical theory of business it is assumed that the main purpose of business is the excess of benefits received over the costs incurred, which is expressed in the form of profits. Thus, the ultimate goal of business can be expressed as maximizing profit from its activities. Of course, in its activities the company should strive to increase profits, however, to concentrate efforts on achieving this goal can only lead to negative consequences in the future. Another important goal is often stated as increase of production and distribution, aimed to maximize growth. It is now believed that the main purpose of functioning of the business entity is to maximize the welfare of its owners. Since the owners get profits of the enterprise, maximization of their incomes leads to satisfaction of the needs and welfare of all stakeholders and interested parties: customers, suppliers, creditors, employees, government and society as a whole. Property owners are interested in improving their well-being not only in the short term, but in the long-term. In practice, this objective is formulated as a maximization of the market value of the company. From the economic point of view market value of the company is a real wealth of its owners. (Brigham 2004)

Thus, the goal of financial management is to maximize wealth of shareholders through sound fiscal policies based on:
– Long-term profit maximization;
– Maximization of the market value of the firm.

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