introduction to finance - T Definition Finance management is the planning procurement and use of funds in business with the aim of maximizing earning

introduction to finance - T Definition Finance management...

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T Definition Finance management is the planning, procurement, and use of funds in business with the aim of maximizing earning. Finance is the provision of money at the time it is wanted. Finance contributes to different business functions such as purchasing, production, and marketing. Business cannot be carried out without finance. In a Sanskrit saying, "Finance is the supreme controlling factor" Objectives of the course Explain the nature of finance and its interaction with other management functions. Review the changing role of a financial manager and his/her position in the management hierarchy Focus on the Shareholders Wealth Maximization (SWM) principle as an operational desirable finance decision criterion. 1. FINANCIAL GOALS Th//e main objective of a business is to maximize owners’ economic welfare. These objectives can be achieved by: Profit maximization and Wealth maximization 1) Profit maximization i) Profit is the difference when income (earning) from sales of business goods or service is bigger than costs of producing the commodity ii) Profit enables accumulation of wealth . iii) Profit also acts as protection against risks which cannot be insured. It enables a business to overcome risks of losses due to competition from other firms, adverse government policies, and rising prices. iii) Profit earning is the main aim of every economic activity. Profit makes business
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self sustain by buying resources, increase welfare and counteract challenges.. v) Profit is a measure of efficiency of an individual or business enterprise. Arguments in Favor of Profit Maximization i. Profits are the main source of finance for the growth of a business and maximizing the profit enables development. iv) Business and Economy need to make profits in favorable situations since pas profits are used by business to survive adverse business conditions such as severe competition, recession, and depression. adverse government policies, and rising prices. v) Profitability is a barometer of measuring efficiency and economic prosperity of a business enterprise. Thus profit Profitability fulfils social goals also. vi) A firm pursuing profit maximization also maximizes social-economic welfare. vii) Maximization is justified on rationality ground Reasons of Rejecting Profit Maximization i) Profit maximization has been criticized in many grounds; ii) The term profit is vague . It cannot be precisely defined as it means different things to different people iii) Profit is for exploiting workers and exploiting consumers. , therefore it is immoral and leads to a number of corrupt practices lowering human value which are essential part of social system iv) Profit maximization objectives ignore the time value of money. v) Profit maximization does not consider the effect of dividend policy or market price of shares. Incase earning of profit per share is the main objective then an enterprise may not think of paying dividends since profit satisfies this aim.
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