Important information about goals of financial

Assignment Help Business Management

Reference no: EM13369031

Important information about Goals of financial management

Shareholders wealth maximization

The goal of the firm, and therefore of all managers and employees, is to maximize the wealth of the owners for whom it is being operated. The wealth of corporate owners is measured by the share price of the stock, which in turn is based on the timing of returns (cash flows), their magnitude and their risk. When considering each financial decision, alternative or possible action in terms of its impact on the share price of the firm's stock, financial managers should accept only those actions that are expected to increase share price. Because share price represent the owner's wealth in the firm, share price maximization is consistent with owner-wealth maximization.

Although shareholder wealth maximization is the primary goal, in recent years many firms have broadened their focus to include the interests of stakeholders as well as shareholders. Stakeholders are groups such as employees, customers, suppliers, creditors, owners and others who have a direct economic link to the firm. Employees are paid for their labor, customers purchase the firm's products or services, suppliers are paid for the materials and services they provide, creditors provide debt financing that is to be repaid subject to specified terms and owners provide equity financing for which they expect to be compensated. A firm with a stakeholder focus consciously avoids actions that would prove detrimental to stakeholders. The goal is not to maximize stakeholder well being but to preserve it.

The stakeholder view does not alter the shareholder wealth maximization goal. Such a view is often considered part of the firm's social responsibility and is expected to provide maximum long-run benefit to shareholders by maintaining positive stakeholder relationships. Such relationships should minimize stakeholder turnover, conflicts and litigation. Clearly, the firm can better achieve its goal of shareholder wealth maximization with cooperation of (rather than conflict with) its stakeholders.

Reference no: EM13369031

Questions Cloud

Building alarm floor planphysical security draw a facility : building alarm floor planphysical security. draw a facility floor plansubmit a drawing as close to scale as possible of

Explain how through the use management information systems : explain how through the use management information systems the competitors of a company benefit when your company uses

Many employers facing industry job shifts also are : many employers facing industry job shifts also are confronted by workforce changes due to retirement of key executives

Determine the coefficient of price elasticity of demand for : determine the coefficient of price elasticity of demand for a local restaurantthe marketing team for a restaurant wants

Important information about goals of financial : important information about goals of financial managementshareholders wealth maximizationthe goal of the firm and

National cultures and organizationearly research on the : national cultures and organizationearly research on the influence of cultural conditioning on collective human

Trompenaars researchtrompenaars 1993 found seven dimensions : trompenaars researchtrompenaars 1993 found seven dimensions - concerned with what people do individualism time and

Negotiation stylesan in-depth look at negotiating as a : negotiation stylesan in-depth look at negotiating as a basic tool of management aspects of different negotiating styles

Classification of fraud by category use acfe fraud : classification of fraud by category use acfe fraud treethere are various ways to classify frauds. one classification

User Account

All Pages