is area of management which concerned withplanning, administration and control uses of resources in monetary terms. Thediscipline is to be divided in to long term and short term decisions and thetechniques. Financial system is consists of public as well as private interestsand also the markets that serve them.(a) Profit maximization and the(b) Wealth maximization.Actually the term '
is to be used in the sense of an object, a goal ordecision criteria. Three decisions - Investment decision, financial decision anddividend policy decision are guided by objective. It should be noted that theterm objective provides a normal framework. So, a firm is tried to achieve andpolicies which should be follow so that the certain goals are to be achieved. Itis also to be noted that the firms do not necessarily follow them all.
How to maximize the profit:
Profit is to be maximized by considering the goal of financial management. Inthis approach, the actions that Increase profits should be undertake and theactions that decrease the profits are surely avoided. So it is obvious that thevalue created by the use of resources is much higher than the Inputresources. So in all the actions, one test is to be used I.e. select the assets,projects and the decisions that are profitable and reject those which are notprofitable.
Maximized profit is the term for financial decision is vague and ambiguousconcept. It lacks the precise connotation. The term 'profit' is amenable todifferent type of interpretations by the different peoples. Example is here,profit may be a long-term or a short-term. It may be total profit or rate of aprofit. It may be a net profit before the tax or net profit after the tax.
Benefits of time:
Another objection to the maximization of the profit criterion is, It Ignores thedifferences in the time pattern of the benefits received from the Investmentproposals or courses of the action. When the profitable work is out
the biggerthe better principle
is adopted as the decision is based upon the totalbenefits received over the working life of asset.
Benefits of quality:
The most important technical limitation of profit maximization criterion is, itignores the quality aspects of benefits which are associated with the financial