assignment

a) Financial management is the process of managing the financial resources of an entity to achieve its functional goals. Thus financial management encompasses planning, organizing, directing the flow of cash and cash equivalents or any organization. Financial management has three main objectives
a. Maintaining liquid funds to meet its payment obligations
b. profit maximization and
c. Wealth maximization
Since, the business has to meet its various payment obligations and receives cash against supply of goods or services; cash flow management has to be effective in order to ensure smooth operations of the business.
Profit maximization can be said to be traditional and short-term approach as it aims at maximizing the monetary resources and increasing the earnings per share of the shareholders. The profit maximization through the core business activity is the sole objective of the firm and so the company uses its resources most effectively and sometimes might have a tendency to exploit them. The firm either produces maximum output for a given input or uses minimum inputs for a given output. Profit is determined by subtracting total costs from the total revenue. The investment proposals are selected which maximize profits and projects with less profits are omitted. The profit maximization concept does not take into account the time value of money and hence only determines the profitability of a given year and does not take into consideration the discounting factors. This concept also ignores the uncertainty of returns and external and internal risks affecting the business operations. The main reason why firm resort to profit maximization is to create funds for growth, expansion or diversification of business and to protect the business from unforeseen natural calamities, losses in the business due to cyclical fluctuations, economic recessions, challenges posed by competitors. The retained earnings generated through earning profits serve as the major source of finance for the company. The management of the company when separate from ownership may be more interested in profit maximization as earning profits is the main aim of any business and increased profits are favorable to their interest and may be related to their increased compensation.
Wealth maximization means maximizing the shareholder’s wealth through dividends issue and creating value to the business through actions which would maximize future cash inflows. Shareholder’s wealth is computed by multiplying the number of shares held with the market value per share. The underlying objective behind wealth maximization is to create value for the shareholders for investing in the business and...