The document discusses financial management, defining it as the planning and control of funds for business operations. It outlines two main objectives of financial management: profit maximization and wealth maximization, highlighting their advantages and disadvantages. Furthermore, it contrasts traditional and modern approaches to financial management, emphasizing the shift towards a more analytical and continuous function in the modern approach.

1. DR KUMAR J
ASSOCIATE PROFESSOR
DEPARTMENT OF COMMERCE
SRMIST RAMAPURAM CAMPUS
FINANCIAL MANAGEMENT
OBJECTIVES OF FINANCIAL MANAGEMENT

2. Meaning of Finance According to Khan and Jain “Finance is
the art and science managing money. It includes financial
services and financial instruments”. The concept of finance
includes capital , funds, money and amount. But each word
having unique function Finance may be defined as the
provision of adequate amount of money when it is required.
‘ `Guthumann and Dougall “Business finance may be
defined as the activity concerned with planning, raising,
controlling and administering of the funds used in the
business”.

3. Definitions of financial management According to Howard &
Upton, “Financial management is the application of the
planning and control functions to the finance function.”
According to Solomon, “Financial management is concerned
with the efficient use of an important economic resource,
namely, capital funds.”
According to J. L. Massie, “Financial management is the
operational activity of a business that is responsible for
obtaining and effectively utilizing the funds necessary for
efficient operation.

4. According to Weston & Brigham, “Financial management is
an area of financial decision making harmonizing individual
motives & enterprise goals.”
According to J. F. Bradley, “Financial management is the
area of business management devoted to the judicious use
of capital & careful selection of sources of capital in order to
enable a spending unit to move in the direction of reaching
its goals.”
“Financial Management is concerned with the managerial
decisions that results in the acquisition and financing of
short and long term credits for the organizations.”

5. Objectives of Financial Management There are two main
objectives of Financial management.
They are 1.Profit Maximisation and 2.Wealth Maximisation
I.. Profit Maximisation: Profit maximisation refers to the
maximisation of income or earnings of the firm. The
argument in favour of profit maximisation as the objectives
of financial management are
Favourable: 1. Natural goal : Profit is the aim of any business.
Naturally, the goal of financial management should be profit
maximisation.

6. 2. Measure efficiency: Profit is a measure of efficiency.
Higher profits imply greater efficiency. Hence the objective
of profit maximisation is quite rational.
3. Internal generation of funds: Profit lead to internal
generation of funds. It helps to finance the growth of the
business.
4. Protection Against risks : Profits provide protection
against risks. When a company is faced with unfavourable
conditions (such as fall in prices, increase in costs and
severe competition) , accumulated profits serve as a
cushion to absorb the stocks

7. 5. Fulfilment of social obligation: Profits are essential for
fulfilling social obligation of the business. The goal of
profit maximisation helps to maximise social welfare.
Unfavourable The arguments against the objectives of
profit maximisation are
1. Vague: The term profit is vague. It has different
meanings. For instance, profit may refer to long term
profits or short term profits. It may refer to profit before
tax or profit after tax or even operating profit

8. 2. Neglects Time Value of Money: The objective of profit
maximisation neglects time value of money. Profits or today
are more valuable that profits to be earned after taxes five
years. But profit maximisation objective treats all profits as
equal, irrespective of the timing.
3. Ignores Risk Factor : Some projects are more risky than the
others through the expected earnings may be equal but, the
risk factor is not considered by the profit maximisation gaol.

9. 4. Trait of Immorality: Profit maximisation implies
exploitation of consumers, workers and the society ,
Hence it is regarded as immoral.
5. Invalid: Profit maximisation may be a valid objective
under conditions of perfect competition. As the markets
are not perfect. It can not be a valid objective.

10. 6. Inadequate: In company formal of organisation, there is
separation of ownership and control. Shareholders are the
owners, but control is in the hands of professional
managers. Creditors m financial institutions, workers ,
consumers and the society are concerned with the
company’s operations.
The management has to reconcile the conflicting interest of
the these stakeholders. Profit maximisation goal is
inadequate for the purpose

11. II. Wealth Maximisation: Wealth Maximisation
refers to the maximation of the wealth of the
shareholders. It involves maximisation of the
present value of an investment. Net present
value (NPV) of an investment is the difference
between present value of its inflows (benefits)
and outflows (costs

12. Favourable: The advantage of wealth maximisation
objective are:
1. Clarity: It takes into account the time value of
money, by discounting the future cash inflows.
2. Time value of Money: I takes into account the time
value of money, by discounting the future cash
inflows.

13. 3. Recognise Risk Factors : The risk factor is also
recognised. For proposals with a greater degree of
risk, a high discount rate (cost of capital) is used and
vice versa
4. Universal Acceptance: The concept of wealth
maximisation is universally accepted. It takes care of
the interest of shareholders, financial institutions,
employees and the society.

14. Approaches or scope of Financial management
Approaches of financial management can be discussed
under two major heads .
1.Traditional Approach 2. Modern Approach
1.Traditional Approach: The traditional approach was
popular during the early stages of evolution of financial
management. It was introduced by Thomas Green Finance.
Under the traditional approach , the scope of financial
management was limited to the procurement of funds on
the most suitable terms. The utilization of funds was not
regarded as a function of financial management.

15. It broadly dcovered the following three aspects
1.Arrangement of funds from financial institutions
2. Arrangement of funds through financial instrument viz
share ,bonds etc.
3.Relationship between a corporation and its sources of
funds
Limitations of Traditional Approach
1.One-sided approach- It is more considerate towards the
fund procurement and the issues related to their
administration, however, it pays no attention to the effective

16. 2.Gives importance to the Financial Problems of
Corporations- It only focuses on the financial problems of
corporate enterprises, so it narrows the opportunity of the
finance function.
3.Attention to Irregular Events- It provides funds to
irregular events like consolidation, incorporation,
reorganization, and mergers, etc. and does not give
attention to everyday business operations.

17. 4.More Emphasis on Long Term Funds- It deals
with the issues of longterm financing.
5. Fails to deal with financing mix : The
traditional approach fail to deal with the
financing mix. It gives no consideration to the
relationship between financing mix and cost of
capital

18. 2.Modern Approach Since the mid 1950,s business
conditions have changed , factors like rapid
industrialization ,technological improvements an severe
competition arrangement of funds have made business
more complex.
They also necessitated the efficient utilization of
financial resources. In response to the changes, the
approache to financial management has also changed.
The main contents of Mew approach 1.Total volume of
funds 2.Specfic assets an enterprise acquire 3.Funds
requires be financed

19. Features of Modern Approach The following are the main
features of a modern approach.
• More Emphasis on Financial Decisions- This approach is
more analytic and less descriptive as the right decisions for
a business can be taken only on the base of accounting and
statistical data.
• Continuous Function- The modern approach is a
constant activity where the financial manager makes
different financing decisions unlike the traditional method,

20. Broader View- It gives importance not only to optimum
use of finance also abut the fund’s procurement. Similarly,
it also incorporates features relating to the cost of capital,
capital budgeting, and financial planning, etc.
• The measure of Performance- Performance of a firm is
also affected by the financial decision taken by the
Management or finance manager. Therefore, to maximize
revenue, the modern approach keeps a balance between
liquidity and profitability