Financial Management Free Essay Example

maximization is a common goal in all companies it cannot be the one and only objective. This is due to the fact that profit and risks are directly proportional. Therefore, while maximizing profits these risks such as negligence of social considerations and the time pattern of returns should be taken into account.

As for wealth maximization, it commonly understood that the objective of a firm is to maximize value and wealth. The market price of the company’s stock represents the value of the firm. Moreover, this market price acts as a performance index which shows the firm’s progress and potential. Normally, the prices in the share markets are a function of two factors. Firstly, the anticipated rate of earnings per share which depends upon the assessment of how profitable a company may be in the future.

Secondly, capitalization rate which reflects the liking of the investors for the company.In the financing field, there are multiple ways in which a company can procure funds which can either be from long term or short term sources. Financial leverage or trading on equity is an important method by which a finance manager may increase the return to common shareholders. Furthermore, a firm can increase its profitability without adversely affecting its liquidity by an efficient utilization of the current resources at the disposal of the firm or by efficient management of working capital.

Ratio analysis can be used to evaluate a company’s performance, profitability, solvency, and liquidity and growth aspect of the firm. Therefore, in short, financial management deals with procurement of funds and their effective utilization in the business. The process of financial management is important at all levels of human

existence, because every entity needs to look after its finances.

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