![]() The effect of the dividend policy on the market price of the shares is also not considered in the objective of the profit maximization.Two firms may have same expected earnings per share, but if the earning stream in one is more risky the market share of its share will be comparatively less. Some projects are more risky than others. It does not take into consideration the risk of the prospective earning stream.It ignores the fact that the cash received today is more important than the same amount if cash received after, say, three years. It treats all the earnings as equal though they occur in different time periods. It ignores the time value of money and does not consider the magnitude and the timing of earnings.Operating profit or profit available for the shareholders?.It means different things for different people. The term ‘Profit’ is vague and it cannot be precisely defined. With the help of the following points we can understand the nature of financial management: Weston and Brighamįinancial Management is the operational activity of a business that is responsible for obtaining and effectively utilizing the funds necessary for efficient operations. Ezra Solomanįinancial Management is an area of financial decision making harmonizing individual motives and enterprise goals. Hence the financial management is the study of income, expenses, capital investments, capital issues etc.įinancial Management is concerned with the efficient use of an important economic resource, namely capital fund. It starts with planning, administration and control of funds.įinancial management also takes into account the future requirement of funds and keeps proper arrangements in present for the same. Financial Management is mainly a part of general management which utilizes available financial funds in optimum way for smooth functioning of business. Meaning of Financial Management can be best described by the words ‘Effective Utilization of Funds. 7.5 Optimum and Effective Utilization of Resourcesįinancial Management is the application of the general management principles in the area of financial decision-making, namely in the areas of investment of funds, financing various activities, and disposal of profits.7.4 Makes Base for Planning and Control.6.2.3 Co-Ordination with Other Departments.5.2.2 Arguments against of Wealth Maximization.5.2.1 Arguments in favor of Wealth Maximization.5.1.2 Arguments against of Profit Maximization. ![]()
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