Financial management is an academic discipline which is concerned with decision-making. This decision is concerned with the size and composition of assets and the level and structure of financing. In order to make right decision, it is necessary to have a clear understanding of the objectives. Such an objective provides a framework for right kind of financial decision making. The objectives are concerned with designing a method of operating the Internal Investment and financing of a firm.
There are two widely applied approaches, viz.
- profit maximization and
- wealth maximization.
The term 'objective' is used in the sense of an object, a goal or decision criterion. The three decisions - Investment decision, financing decision and dividend policy decision are guided by the objective. Therefore, what is relevant - is not the over-all objective but an operationally useful criterion: It should also be noted that the term objective provides a normative framework. Therefore, a firm should try to achieve and on policies which should be followed so that certain goals are to be achieved. It should be noted that the firms do not necessarily follow them.
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