Goals of Financial Management:

            Financial management of a firm has to pursue a variety of objectives simultaneously. It is required to observe the interests of different sections of people, namely, shareholders, management, workers, consumers and community at large. Traditionally, the basic objective of financial management is to work toward maximization of profits. However, according to the modern thinkers, financial management should be concerned with maximization of wealth, because wealth is an index of the worth of the firm and its maximization is consistent with the object of maximum economic welfare of the owners (shareholders) of the firm. It can be obtained by the following ways:

(a)  To maximize profit

(b)  To maximize Earning Per Share (EPS)

(c)  To minimize cost

(d)  To maximize market share

(e)  To maximize the current value of the company’s stock

(a) To maximize profit: Profit maximization implies maximizing the rupee income of the firm. But, in modern days profit maximizing as an ultimate objective is considered as immoral, since it ignores social responsibility and it may lead to adoption of unethical business practices. Some arguments in favour of and against of profit maximization are given below;

            Arguments in favour of profit maximization:

(i)            Resources are efficiently utilized

(ii)          It is an appropriate measure of firm’s performance

(iii)         It serves interest of society also

Arguments in against of profit maximization:

(i)            It is vague (uncertain)

(ii)          It ignores the timing of returns

(iii)         It ignores risk

(iv)         It assumes perfect competition

(v)          It is difficult, unrealistic, inappropriate and immoral for new business environment.

(b)  To maximize Earning Per Share (EPS): Maximizing EPS implies that the total earnings are retained and reinvested in the business of the firm and no portion of the earning is distributed as dividend among the shareholders.

Objections to EPS maximization:

(i)            Investors, like senior citizen, low income group people, who prefer current dividend as against certain capital gains.

(ii)          EPS lacks time value of money and the risk factor

(iii)         Since, market price of the shares is not a solo function of ESP. Hence, such policy may not always work as primary goal of financial management.

(iii)  To minimize cost: Cost minimization implies making the product/service available at minimum cost. Such policy may not always result in highest sales revenue or highest profit to maximize the wealth of the shareholders. Hence, such policy may not always work as primary goal of financial management.

(iv) To maximize market share: Market share maximization implies maximizing sales revenue by serving maximum number of customers. Such policy may not always the result in highest profit. Hence, such policy may not be treated as primary goal of financial management.

(v) To maximize the current value of the company’s stock: It can be fulfilled by maximizing the value of the firm, maximizing the shareholders’ value and maximizing the share price. These three goals are considered the equivalent goals of financial management.

            To conclude, the aim of an enterprise should be wealth maximization and not the profit maximization. Prof. Soloman argue that it is useful to make a distinction between ‘profit’ and ‘profitability’. Therefore, the proper goal of financial management is wealth maximization.