Q.

2: What are the goals of Financial Management needs to be

highlighted? What is Wealth maximization needs to be explained?
Distinguish between profits Maximization and Wealth maximization. In
what respect wealth maximization is superior to profit maximization
needs to be analyzed?

Goals Of Financial Management:

The goal of the financial management should be to achieve the objective of
the businesss owners, who are the suppliers of capital. In the case of
company, the owners are shareholders. The financial managers function is
not to fulfill his own objectives, which may include higher salaries earning
reputation or maintaining and advancing his personal power and prestige. It
is rather to manager is successful in this endeavour, he will also achieve
his personal objectives. It is generally agreed that the financial objectives
of the firm should be the maximisation of owners wealth
From the above clarification, on thing is certain that the wealth
maximisation is a long term strategy that emphasizes raising the present
value of the owners investment in a company and the implementation of
projects that will increase the market value of the firms securities. This
criterion, if applied, meets the objections raised against earlier criterion of
profit maximisation. The financial manager also deals with problem of
uncertainty by taking into account the trade- off between the various returns
and associated levels of risks. It also takes into account the payment of
dividends to shareholders. All these ingredients of the wealth maximisation.

Need Of Wealth Maximization:

This is also known as value maximization or net present worth
maximization. Net present value is the difference between the gross
present value of benefits from an investment proposal and the investment
required achieving these benefits. The gross present value of a course of
action is found out by discounting or capitalizing its benefits at a rate, which

reflects their timing or uncertainty. Any financial action with a positive net
present worth should be undertaken otherwise it should be rejected.
The need of Wealth Maximization includes;
1. It considers time value of money.
2. It takes care of uncertainty of expected benefits and the benefits are
measured in terms of cash flows and not accounting profits.
The wealth maximization objective is consistent with the objective of
maximization of economic welfare of shareholders. The wealth of
shareholders id reflected by the market value of the company shares.
Hence, wealth maximization implies the maximization of the market value
of the companys shares, which is the fundamental objective of the firm.
Wealth Maximization V/s Profit Maximization:

1) The traditional approach of financial management was all about profit

maximization.

2) Profit maximization refers to how much dollar profit the company

makes.
Wealth maximisation refers to the value of the company generally
expressed in the value of the stock.

Conclusion:
Wealth maximisation is superior to profit maximisation because:

(i) Profit cannot be ascertained well in advance to express the probability

of return as future is uncertain. It is not at possible to maximize what
cannot be known.
(ii) The executive or the decision maker may not have enough confidence
in the estimates of future returns so that he does not attempt future to
maximize. It is argued that firm's goal cannot be to maximize profits but to
attain a certain level or rate of profit holding certain share of the market or
certain level of sales. Firms should try to 'satisfy' r