Introduction to Financial Management

Figure 1

An overview of financial management (An extract from I.M. Pandey Pg 16)

T

ypical goal of firm from figure 1 include Stockholders wealth maximization;

profit maximization; managerial reward maximization; behavioural goals, and social

responsibility. Modern managerial finance theory operates on the assumption that the

primary goal of the firm is to maximize the wealth of its stockholders, which translates

into maximizing the price of the firm’s common stock. The other goals influence a

firm’s policy but are less important than stock price maximisation.

o Maximizing Market share Value comes from:

• Making 'best use' of existing operations/projects through reengineering of products
  and processes


• Creating additional market value by undertaking all "profitable"
  Investment projects such as:
  o expansion into new areas of business
  o expansion of existing line of business
  o correct sizing

Financial Management

Maximisation of Share Value

Financial Decisions

Investment
Decisions

Liquidity

Management

Financing

Decision

Dividend

Decision

Return

Risk