Financial Management Goals
The term financial management refers to the rulebooks that businesses must follow to be accountable to their stockholders, stakeholders and the general public. Financial management is essential because numerous people can be affected by the unethical behaviors and actions of businesses. Employees deserve to know what is going on in upper management, and with the company as a whole, well in advance of serious problems. Shareholders have the right know what is going on with the company they are investing. Their money depends on the financial strength of the company. Finally, the general public also has a right to know the transactions of a publicly traded company, because in the case of catastrophe, they could be responsible for bailing out the company with taxpayer money. The economic status of companies in the marketplace, which include the earnings per share, price earnings ratio, the price/cash ratio, dividend yield, book value per share, market value per share, and the market/book ratio. Market value ratios give management an idea of what the firm's investors think of the firm's performance and future prospects. If the rest of the company's ratios are good, then the market value ratios should reflect that and the stock price of the firm should be high. When business managers try to maximize the wealth of their firm, they are actually trying to increase their stock price. As the stock price increases, the individual who holds the stock wealth increases. As the stock price goes up, the value of the firm increases and the net worth of the individual who owns the stock increases. Management decisions affect stockholders in a variety of ways. Decisions made by management impact the success or failure of the company from a profit standpoint, which significantly affects shareholder demand. Managers also make operational and ethical decisions that can affect the way current and potential shareholders view the company.