CheckPoint: Financial Management Goals
It is sometimes suggested that the most important goal for financial management is to earn the highest possible profit for the company. However, the key is to use that in setting a goal for the firm. The main measure of performance is how the earnings are valued by the investor. It is important to an investor how the firm’s earnings have increased or decrease, the quality, reliability and risk of it. The financial manager must take all of these into considerations when making each decision on the firm’s overall valuation. The financial manager may attempt to maximize the wealth of the firm’s shareholders by getting the highest value for the firm. Stock prices are not directly controlled by the financial manager since it is generally affected by the expectations of the firm’s future as well as the current economic environment. In some instances, management may be more interested in maintaining its own tenure than in maximizing stockholder wealth. The goal of shareholder wealth maximization is consistent with a concern for social responsibility for the firm. By adopting policies that would maximize values in the market, the firm can attract capital, provide employment, and offer benefits to its community. Another importance is the ethical behavior of a company because it creates an invaluable reputation. Companies can become more visible than others in their pursuit of these goals. The companies that do a good job at practicing ethical behaviors are profitable, save money, and are good citizens in their communities.
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