Objectives of financial management:
Efficient financial management requires existence of some objectives or goals because judgment as to whether or not a financial decision is efficient is to be made in light of some objective.
The two main objectives of financial management are:
1) Profit Maximisation: It is traditionally being argued, that the objective of a company is to earn profit, hence the objective of financial management is profit maximisation. Thus, each alternative is to be seen by the finance manager from the view point of profit maximisation.
2) Wealth maximisation: The companies having profit maximisation as its objective may adopt policies yielding handsome profits in the short run which are unhealthy for the growth, survival and overall interests of the business. A company may not undertake planned and prescribed shut-downs of the plant for maintenance, and so on for maximising profits in the short run. Thus, the objective of a firm should be to maximise its value or wealth.
Functions of a Finance Manager: The twin aspects, procurement and effective utilisation of funds are crucial tasks faced by a finance manager. The financial manager is required to look into the financial implications of any decision in the firm.
Some of the important decisions as regards finance are as follows:
1) Estimating the requirements of funds: A business requires funds for long term purposes i.e. investment in fixed assets and so on. A careful estimate of such funds is required to be made. Forecasting the requirements of funds is done by a finance manager by the use of techniques of budgetary control and long range planning.
2) Financing decision or Decision regarding capital structure: Once the requirements of funds are estimated, a decision regarding various sources from where the funds would be raised is to be taken.
3) Investment decision: Funds procured from different sources have to be invested in acquiring fixed assets as well as current assets. When decision regarding fixed assets is taken it is called capital budgeting decision.
4) Dividend decision: This decision is concerned with distribution of surplus funds. The profit of the firm is distributed among various parties such as creditors, employees, shareholders, debenture holders etc. Under this decision the finance manager decided how much to be distributed in the form of dividend and how much to keep aside as retained earnings.
5) Supply of funds to all parts of the organisation or cash management: The finance manager has to ensure that all sections i.e. branches, factories, units or departments of the organisation are supplied with adequate funds.
6) Keeping in touch with stock exchange quotations and behavior of share prices: It involves analysis of major trends in the stock market and judging their impact on share prices of the company's shares.
