The long run objective of financial management is to
A) maximize earnings per share
B) maximize the value of the firm’s common stock
C) maximize return on investment
D) maximize market share
Answer Explanation for Question: The long run objective of financial management is to
The Financial Management function is responsible for planning, organizing, directing and controlling the financial activities of the enterprise such as procurement and funding. Financial management applies general management concepts to financial resources of an organization.Every economic activity aims to earn a profit. The main goal of any business concern is to earn profit. Businesses use profits to evaluate the effectiveness of their operations. In the short-term and long-term, the finance manager tries to maximize profits for the company. Business uncertainty makes long-term profits impossible to guarantee.
Finance managers are, however, able to earn maximum profits even in the long-term if they make appropriate financial decisions and use the company’s finances effectively. Financial management is also concerned with maximizing shareholder value (wealth maximization). The goal of wealth maximization is to maximize shareholder returns. In other words, the finance manager tries to give shareholders a maximum dividend. It is directly related to the performance of the company that the market value of the shares is determined. Market value of shares is higher if the performance is better, and vice versa. Consequently, the finance manager should maximize shareholder value.
Objectives of Financial Management
Some of the objectives of financial management are:
i. To maintain a regular and adequate supply of funds for the concern.
ii. To ensure safety of investment, funds should be put into safe ventures so that an adequate rate of return can be achieved.
iii. To produce adequate returns for shareholders, which will be determined by the earning capacity, market price of the share, and expectations of the shareholders.
iv. To ensure the most efficient use of funds.
v. To structure a sound capital structure. For that a sound and fair mix of debt and equity capital should be maintained.
I hope after going through this post you might have clearly understood the Question: The long run objective of financial management is to