Objectives of financial management

Financial management means planning, organizing, directing and controlling the Financial activities such as procurement and utilisation of funds of the enterprise. It means applying general management principles to Financial resources of the enterprise. In simple terms the objective of Financial Management is to maximize the value of firm, however it is much more complex than that. 

The Management of the firm involves many stakeholders, including owners, creditors, and various participants in the Financial market. Effective procurement and efficient use of finance lead to proper utilisation of the finance by the business concern. It is the essential part of the Financial manager.

Objectives of the Financial Management

1. 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. The finance manager tries to earn maximum profits in the long term and short term. He cannot guarantee profits in the long term because of business uncertainties. However, a company can earn maximum profits even in the long term, if finance manager takes proper Financial decisions and he uses the finance of the company properly.

2. Wealth maximization: Wealth maximization (shareholders value maximization) is also a main objective of Financial Management. Wealth maximization means to earn maximum wealth for the shareholders. So, the finance manager tries to give a maximum dividend to the shareholders. He also tries to increase performance of the company. Better the performance, higher is the market value of shares and vice versa. So, the finance manager must try to maximize shareholders value.

3. Proper estimation of total Financial requirements: Proper estimation of total Financial requirements is a very important objective of Financial Management. The Financial manager must estimate the total Financial requirements of the company. He should find out how much finance is required to start and run the company. He must find out how much finance is required to start and run the company. He must find out the fixed capital and working capital requirements of the company. His estimation must be correct. If not, there will be shortage or surplus of finance. Estimating the Financial requirements is a very difficult job. The Finance manager must consider many factors, such as the type of technology used by company, number of employees employed, scale of operations, legal requirements, etc..

4. Proper mobilization: Mobilization (collection) of finance is an important objective of Financial Management. After estimating the Financial requirements, finance manager must decide about the source of finances. He can collect finance from many sources such as shares, debentures, bank loans etc.. There must be a proper balance between equity finance and debt finance. The company must capital at a low cost of capital.

5. Proper utilisation of resources: Proper utilisation of finance is an important objective of Financial Management. After estimating the Financial requirements, the finance manager must decide about the sources of finance. He can collect finance from many sources such as shares, debentures, bank loans, etc.. There must be a proper balance between owned finance and borrowed finance. The company must borrowe money at a low rate of interest.

6. Maintaining proper cash flows: Maintaining proper cash flow is a short term objective of Financial Management. The company must have a proper cash flows to pay the day-to-day expenses such as purchase of raw materials, payments of wages and salaries, rent, electricity bills etc.. If the company has a good cash flows,it can take advantage of many opportunities such as getting cash discounts on purchases, large scale purchasing, giving credit to customers, etc.. A healthy cash flow improves the chance of survival and success of the company.

7. Survival of the company: Survival is the most important objective of the Financial Management. The company must survive in this competitive business world. The finance manager must be very careful while making Financial decisions. One wrong decision can make the company sick, and it may close down.

8. Creating reserves: One of the objective of Financial Management is to create reserves. The company must not distribute the full profit as a dividend to the shareholders. It must keep a part of it profit as reserves. Reserves can be used for future growth and expansion. It can also be used to face contingencies in the future.

9. Proper coordination: Financial Management must try to have proper coordination between the finance department and other departments of the company.

10. Create Goodwill: Finance manager must try to create Goodwill for the company. It must improve the image and reputation of the company. Goodwill helps the company to survive in the short term  and succeed in the long term. It also helps the company during bad times.

11. Increase efficiency: Financial Management also tries to increase the efficiency of all the departments of the company. Proper distribution of finance to all the departments will increase the efficiency of the entire company.