The overarching goal of the financial manager in a for-profit business should be the maximization of value for shareholders. However, managerial goals may be different from shareholders. Management will continuously attempt to control and require adequate resources to prevent the company from going out of business. In addition, if left to engage in their own goals rather than those of shareholders, financial managers will choose to make decisions that allows them to rely on internally generated cash flows rather than depending on outside financial markets. The result of these two goals is that managers may have a different objective than shareholders; that of maximizing corporate wealth, which is not necessarily the same thing as shareholder wealth.
The financial manager is responsible for the effective management of finance operations and to make sure the activities contribute to the successful management of the business. To be successful corporate finance managers have several courses of action that can increase shareholder value. Two key factors are financing the company at the lowest maintainable after-tax cost and apportioning capital resources to investments that assure the highest risk-adjusted returns to investors (Lupia, 2006). To accomplish this, the finance manager must understand fundamental aspects of the business while working with the senior management team to create optimal operational practices. Finally, the finance manager must have the ability to execute the company's strategies. These actions create an environment where financial managers are able to accomplish their primary goal, which is maximizing shareholder value.
Financing at the lowest cost is key to maximizing shareholder value. Because interest and principle payments are paid for finite periods of time cash flows are controlled in quantity as well as time. In contrast, as owners of the business,... [continues]
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