DEFINITION OF FINANCIAL MANAGEMENT
Eugene F Bingham, Joel F Houston
Financial management, also called corporate finance, focuses on decisions relating to how much
and what types of assets to acquire, how to raise the capital needed to purchase assets, and how
to run the firm so as to maximize its value.
In public corporations, managers and employees work on behalf of the shareholders who own the
business, and therefore they have an obligation to pursue policies that promote stockholder
value. While many companies focus on maximizing a broad range of financial objectives, such
as growth, earnings per share, and market share, these goals should not take precedence over the
main financial goal, which is to create value for investors.
Mahendra D Gurjar, KK Datta
Financial management may be defined as a managerial activity which is concerned with the
planning and controlling of the financial resources of the firm. Some other definitions of
financial management are
(a) Financial management deals with how the corporation obtains the funds (Financing
decisions) and how it uses the funds (Investment decisions).
(b) Financial management is the application of planning and controlling function to finance
function.
(c) Financial management is the area of the business management devoted to judicious use of
capital and a careful selection of sources of capital in order to enable a business firm to move in
the direction of reaching its goal.
Two goals are presented for financial management decision.
(a) Profit Maximization.
(b) Shareholder’s Wealth Maximization.
Profit maximization implies that the firm either produce more output with the same level of
inputs or use lees level of input for producing the same level of output. Hence, the resources of
the society are efficiently utilised. In order to earn more profit, firms resort to profit
maximization and hence make efficient use of the resources. They do so in order to achieve
personal interests but in doing so, unknowingly they also serve the interest of the society. Hence,
it is argued that ‘profit’ should be considered as the most appropriate measure of the firm’s
performance.
C Paramasivam, T Subramanian
Financial management is an integral part of overall management. It is concerned with the duties
of the financial managers in the business firm.
Effective procurement and efficient use of finance lead to proper utilization of the finance by the
business concern. It is the essential part of the financial manager. Hence, the financial manager
must determine the basic objectives of the financial management. Objectives of
Objectives of Financial Management may be broadly divided into two parts such as:
1. Profit maximization
2. Wealth maximization.
Profit Maximization
Main aim of any kind of economic activity is earning profit. A business concern is also
functioning mainly for the purpose of earning profit. Profit is the measuring techniques to
understand the business efficiency of the concern. Profit maximization is also the traditional and
narrow approach, which aims at, maximizes the profit of the concern. Profit maximization
consists of the following important features.
1.Profit maximization is also called as cashing per share maximization. It leads to maximize the
business operation for profit maximization.
2. Ultimate aim of the business concern is earning profit, hence, it considers all the possible ways
to increase the profitability of the concern.
3. Profit is the parameter of measuring the efficiency of the business concern. So it shows the
entire position of the business concern.
4. Profit maximization objectives help to reduce the risk of the business.
Wealth Maximization
Wealth maximization is one of the modern approaches, which involves latest innovations and
improvements in the field of the business concern. The term wealth means shareholder wealth or
the wealth of the persons those who are involved in the business concern.
Wealth maximization is also known as value maximization or net present worth maximization.
This objective is an universally accepted concept in the field of business.
