Mb0045
Master of Business Administration- Semester 2
MB0045-FINANCIAL MANAGEMENT
(4 credits)
(Book ID: B1628)
ASSIGNMENT- Set 1
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Q1. What are the goals of financial management?
Ans. Goal of financial management
Financial management means maximization of economic welfare of its shareholders. Maximization of economic welfare means maximization of wealth of its shareholder’s wealth maximizations reflected in the market value of the firm’s shares. Experts believe that, the goal of financial management is attained when it maximizes the market value of shares. There are two versions of the goal of financial management of the firm-Profit Maximization and Wealth maximization. Let us now discuss the goals of financial management in datial.
Profit maximization
Profit maximization is based on the cardinal rule of efficiency. Its goal is to maximize the returns with the best output and price levels. A firm’s performance is evaluated in terms of profitability. Profit maximization is the traditional and narrow approach, which aims at maximizing the profit of the concern. Allocation of resources and investor’s perception of the company’s performance can be traced to the goal of profit maximization. Profit maximization has been criticized on many accounts:
• The concept of profit lacks clacks clarity. 1. Is it profit after tax or before tax? 2. Is it operating profit or net profit available to shareholders?
• Profit maximization neither considers the time value of money nor the net present value of the cash inflow. It does not differentiate between profit of current year with the profits to be earned in later years.
• The concept of profit maximization apprehends to be either accounting profit or economic normal profit or economic supernormal profit.
Profit maximization as a concept, even though has the above-mentioned drawbacks, is still given importance as profit
MB0045-FINANCIAL MANAGEMENT
(4 credits)
(Book ID: B1628)
ASSIGNMENT- Set 1
___________________________________________________________________
Q1. What are the goals of financial management?
Ans. Goal of financial management
Financial management means maximization of economic welfare of its shareholders. Maximization of economic welfare means maximization of wealth of its shareholder’s wealth maximizations reflected in the market value of the firm’s shares. Experts believe that, the goal of financial management is attained when it maximizes the market value of shares. There are two versions of the goal of financial management of the firm-Profit Maximization and Wealth maximization. Let us now discuss the goals of financial management in datial.
Profit maximization
Profit maximization is based on the cardinal rule of efficiency. Its goal is to maximize the returns with the best output and price levels. A firm’s performance is evaluated in terms of profitability. Profit maximization is the traditional and narrow approach, which aims at maximizing the profit of the concern. Allocation of resources and investor’s perception of the company’s performance can be traced to the goal of profit maximization. Profit maximization has been criticized on many accounts:
• The concept of profit lacks clacks clarity. 1. Is it profit after tax or before tax? 2. Is it operating profit or net profit available to shareholders?
• Profit maximization neither considers the time value of money nor the net present value of the cash inflow. It does not differentiate between profit of current year with the profits to be earned in later years.
• The concept of profit maximization apprehends to be either accounting profit or economic normal profit or economic supernormal profit.
Profit maximization as a concept, even though has the above-mentioned drawbacks, is still given importance as profit