![]() The financial decision is one of the most important decisions that the finance managers of an organization exercise. Other objectives: There can be other objectives such as optimum utilisation of financial resources, choosing the most appropriate source, ensuring easy availability of funds at reasonable costs etc. The market price of the shares of the company are highly influenced by the financial decisions of the company. The goal of financial management in this is to optimize the current value of the company's equity shares. Higher the share price, higher is the wealth of the shareholders. This objective focuses on increasing the overall shareholder wealth of the company, by directing the financing efforts on increasing the share price of the company. ![]() Wealth maximization: Financial management mainly aims to maximize shareholders' wealth which is also referred to as wealth-maximization. It is also the traditional objectives of the financial management that focuses on the fact that all the financial efforts should be made to increase the overall profit of the company, Profit maximization: This was the primary objective of firms which are concerned with the increasing earning per share (EPS) of the company. The overall health of finance is determined by the quality of financial management. The amount of long term and short term financing to be used: Financing decision decides the proportion of funds raised from long term and short term sources.Īll items in the profit and loss account: Financing decisions affect the value of items appearing in the profit and loss account.Īll the financial decisions taken by the financial managers in the past largely affect the current financial decisions as well as the future financial decisions. The decisions of the finance managers affect debt, equity share capital, preference share capital and is an integral part of financing management. The quantum of current assets and its break up into cash, inventory and receivables: The financial decisions about investments in fixed assets, the credit policy, inventory management, etc., influence the amount of working capital required by a business enterprise.īreak-up of long-term financing into debt, equity etc: It is important for a financial manager to decide the way by which the proportions of debt and/or equity in a business has to be pumped in. The size and composition of fixed assets of the business: Over investment in fixed assets may block funds and increase the size of fixed assets which may not be healthy for business whereas, little investment may hamper the growth of business. Financial management decisions affect all the items of the financial statement directly or indirectly. Hence, Financial management can be said as the application of the management functions, particularly planning and controlling functions in the finance function of the business.įinancial Management is very important as it has a direct emphasis on the financial health of a business. It includes business activities such as procuring funds, reducing the cost of funds, keeping the risk under control and deployment of such funds.įinancial management involves two dimensions, that is finance and management. Finances are needed to operate a business, as well as to carry out day to day activities of the business.įinancial Management is concerned with the proper procurement and usage of finance. x 7 ft.The money required to carry out business activities is known as business finance.
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