Checkpoint 2 - and financing decisions that determine the...

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For a firm to successfully maximize its returns, they must have financial management  practices that provide the necessary financial information to make sound business  decisions.  The primary goals of financial management -- profit maximization and wealth  maximization – are accomplished by successfully managing funds and allocating profit  in ways that benefit both the shareholders and the long-term aims of the firm.   Competent financial management is important if a company is to increase its earnings  for shareholders; this depends on investments that yield positive returns.  Shareholder  earnings are calculated by deducting total costs from total income.  Financial  management decisions can affect shareholder earnings by affecting both present and  future earnings per share, through profit allocation decisions, and through investment 
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Unformatted text preview: and financing decisions that determine the composition of fixed assets and the sources of funds, respectively. Thus, its necessary to make sound investment choices which balance the risk against the expected benefits for the firm and for shareholders. It is important to note that profit maximization may focus on short-term profitability, a goal which sometimes can conflict with the creation of long-term wealth. Sound financial management avoids short-run decisions that can reduce a firms potential for long-term growth; this emphasis on wealth creation ensures long-term financial success for a company and its shareholders. Source: Pandey, I.M. Financial Management. 9th Edition , Vikas Publishing House, 2008...
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