Financial Management

Table of Contents

Question 1 2

Question 2 4

Part (a) 4

Part (b) 7

Part (c) 8

References 10

Question 1

Well- planned or organized use of finance would give results of better utilization of the finance by business. This is the main role of a financial manager of an organization and they are the ones to establish the primary objectives of financial management. The financial management objectives are separated into two areas; profit maximization and wealth maximization (Paramasivan & Subramanian, 2009).

When a business is set with the aim of earning profit it is known as profit maximization. Moreover, this type is highlighted as the narrow or the tradition way of maximizing profits. This technique would increase the business operations in order to achieve profit maximization as well as would take in to account all the available ways to increase the profitability of the company. Profit is actually used to calculate the efficiency of the business as well as to know the holding position of the company. Companies with this objective have the advantage as it reduces the risks that can be faced by the company (Paramasivan and Subramanian, 2009).

Wealth Maximization is one of the modern techniques or approaches for a company which consist the latest improvements. According to Paramasivan & Subramanian (2009), wealth means the capital of shareholders; the money of the persons who invested it and are involved or are the owners of the business. Here to maximize the shareholders’ wealth the company maximizes the market value of the existing shareholders’’ common stock. Arthur () mentioned that investors most of the time do respond to poor investment or dividend decisions which results a fall in the total value of the company’s stocks. The investors positively react to good decisions by increasing the prices of the stock and these good decisions are the ones that allow the company to generate wealth for shareholders (Arthur, 2003).

On the other hand...