Mb0045

MBA- SEMESTER-II
ASSIGNMENT – MB0045

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Course : MBA
Subject : FINANCIAL MANAGEMENT
Semester : Second
Module No : MB0045
Date of Submission : 30.01.2013
Marks Awarded :

Directorate of Distance Education Signature of Sikkim Manipal University Signature of Evaluator II-Floor, Syndicate House Center Cordinator Manipal-576104

Q1. What are the goals of financial management?

Ans. Goals of Financial Management
Financial management means maximisation of economic welfare of its shareholders. Maximisation of economic welfare means maximisation of wealth of its shareholders. Shareholder’s wealth maximisation is reflected in the market value of the firm’s shares. Experts believe that, the goal of financial management is attained when it maximises the market value of shares. There are two versions of the goals of financial management of the firm – Profit Maximisation and Wealth Maximisation.

Let us now discuss the goals of financial management in detail. 1. Profit maximisation
Profit maximisation is based on the cardinal rule of efficiency. Its goal is to maximise the returns with the best output and price levels. A firm’s performance is evaluated in terms of profitability. Profit maximisation is the traditional and narrow approach, which aims at maximising the profit of the concern. Allocation of resources and investor’s perception of the company’s performance can be traced to the goal of profit maximisation. Profit maximisation has been criticised on many accounts.
The concept of profit lacks clarity. What does profit mean? o Is it profit after tax or before tax? o Is it operating profit or net profit available to shareholders?

• In this sense, profit is neither defined precisely nor correctly. It creates unnecessary conflicts regarding the earning