question_answer 18)

What is the main objective of financial management? Explain briefly.

Answer:

Primary aim of financial management is to maximize shareholder's wealth, which is referred to as the wealth maximization concept. The wealth of owners is reflected in the market value of shares, wealth maximization means the maximization of market price of shares. According to the wealth maximization objective, financial management must select those decisions which result in value addition, that is to say the benefits from a decision exceed the cost involved. Such value addition increases the market value of the company's share and hence result in maximization of the shareholder's wealth.