What are the main objectives of financial management? Briefly explain.
The two main objectives of financial management are:
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Primary objective: The primary objective of financial management is maximization of shareholder’ wealth, which is achieved by increase in value of shares or the market price of the shares.
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Secondary objectives: In order to achieve the primary objective of wealth maximization, financial management should aim to the following objectives:
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Profit maximization/effective utilization of fund: Effective utilization of funds, by ensuring that benefits of an investment exceeds its cost.
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Availability of funds at reasonable costs: To raise funds at minimum cost and minimum risk, through effective financing decision.
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Ensure safety of funds: To ensure safety of funds by creating reserves, reinvesting profits etc.
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Maintaining adequate liquidity: To maintain financial liquidity and profitability through working capital decision.
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Avoiding idle finance: Idle finance not only adds to the cost of funds but also encourages wasteful expenditure. Therefore, financial management avoids over capitalization.
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The government of India announced Demonetization of ₹ 500 and ₹ 1,000 currency notes with effect from the midnight of November 8, 2016. As a result, the existing ₹ 500 and ₹ 1,000 currency notes ceased to be legal tender from that date. New currency notes of the denomination of ₹ 500 and ₹ 2,000 were issued by Reserve Bank of India after the announcement.
This step resulted in a substantial increase in the awareness about and use of Point of Sale machines, e-wallets, digital cash and other modes of cashless transactions. Also, increased transparency in monetary transactions and disclosure led to a rise in government revenue in the form of tax collection.
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