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Objectives of Financial Management

Objectives of Financial Management
OBJECTIVES OF FINANCIAL #management Before looking into the two main objectives of finance management, let us look at the lighter side of money. Some hilarious quotes that will make your day: “Money is like a sixth sense – and you can’t make use of the other five without it.” – William Somerset Maugham “The safest way to double your money is to fold it over and put it in your pocket.” – Kin Hubbard “Money is the best deodorant.” – Elizabeth Taylor “If you think nobody cares if you’re alive, try missing a couple of car payments.” – Earl Wilson “Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.“ ~Sam Ewing “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.” – Will Smith  “There’s a way of transferring funds that is even faster than electronic banking. It’s called marriage.” — James Holt McGavran Objectives of Financial Management may be broadly divided into two parts such as: 1. #Profit maximization 2. #Wealth maximization. Profit Maximization The main purpose of any kind of economic activity is earning profit. A business concern operates mainly for the purpose of making profit. Profit has become the yardstick to measure the business efficiency of a concern. Profit maximization is also the out-moded and narrow approach, which aims at, maximizing the profit of the concern. Profit maximization consists of the following important features. Favorable Arguments for Profit Maximization:  The following important points are in support of the profit maximization objectives of the business concern: Main aim is earning profit. Profit is the parameter of the business operation. Profit reduces risk of the business concern. Profit is the main source of finance. ##profitability meets the #social needs also. Unfavorable Arguments for Profit Maximization:  The following important points are against the objectives of profit maximization: Profit maximization leads to exploiting workers and consumers. Profit maximization may lead to unethical practices, unfair trade practice, etc. Profit maximization objectives leads to inequalities among the #stake holders such as #customers, #suppliers, #public #shareholders, etc.  Drawbacks of Profit Maximization:  Profit maximization objective consists of certain drawbacks also: It is vague: Profit is not defined precisely or correctly. It ignores the #time value of money: Profit maximization does not consider the time value of money or the net present value of the cash inflow. It leads to certain differences between the actual cash inflow and net present cash flow during a particular period. It ignores risk: Profit maximization does not consider risk of the business concern. Risks may be internal or external which will affect the overall operation of the business concern.  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 a universally accepted concept in the field of business. Favorable Arguments for Wealth Maximization: Wealth maximization is superior to the profit maximization because the main aim of the business concern under this concept is to improve the value or wealth of the shareholders. Wealth maximization considers the comparison of the value to cost associated with the business concern. Total value detected from the total cost incurred for the business operation. It provides exact value of the business concern. Wealth maximization considers both time and risk of the business concern. Wealth maximization provides efficient distribution of resources. It ensures...
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Social Value of Corporate Companies

Social Value of Corporate Companies
Social Value of Corporate Companies Economic Responsibilities: Ethical and discretionary responsibilities of a business firm are listed in the order of priority. First, a firm has to satisfy its economic responsibilities, followed by fulfilling legal responsibilities in order to survive in the market. Only then, it can think about or focus on purely voluntary actions pertaining to ethical consideration. In this competitive market situation, a business unit has to concentrate on profit making, the primary motive behind any business activity. However; it is easier said than done. You cannot hit the bull’s eye at the very first attempt. A firm has to become economically stable first; only then, it integrates social commitments in its agenda. Arguments for social responsibility: Public image: Socially responsible firms gain more customers and employees feel proud to work for such organizations. Handling the government regulations with ease: Government is a massive institution with long arms. It seeks to regulate business in public interest. Before government stretches its long arms, businesspersons should discharge their obligations to society. Business is resourceful: With a pool of resources, such as capital, labor and expertise, business is in a better position to tackle social problems and work for social goals. Let business try: It is that many other institutions have failed in handling social problems. So why should not a business enterprise handle social problems? Prevention is better than cure: Social problems have to be handled by the management at some point of time or the other. Problems with labor unions should be handled in a diplomatic way, so that they will not develop into serious social breakdown that consumes most of the management’s time. As a token of gratitude: Business units benefit from society. Based on the commonly accepted principle, that one owes debts of gratitude towards those who benefits us, the corporations have debts that it owes to society. Arguments against social responsibility: Profit maximization is the ultimate goal: Business units are accused of having profit maximization as their goal. Since business operates in a world of poverty and hunger, the economic efficiency of business is a matter of priority and should be the sole mission of business. Society has to pay the cost: The costs of social responsibility will be passed on to the society and the question is can the society bear these additional costs? Lack of social skills: Managers are here to solve economic problems and they do not possess knowledge or skills to provide the right solutions for social problems. Business has enough power: Business already is wielded with enough social power. The society should not take any steps, which will make it stronger. Social overhead costs: Costs on social responsibility is considered a social cost, which will not immediately benefit the business. Why spend money on an object, the benefits of which will be relished only in the future. Lack of broad support: The idea of business involvement in achieving social goals is not widely supported by many groups in society. Business and society are interlinked in many ways and the business has to handle the societal aspects with great care or else it may have to face the consequences arising out of such misappropriation or...
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