1/23/2024 0 Comments Financial manager definition![]() The financial manager in a corporation makes decisions for the stockholders of the firm. What we need, therefore, is a goal that encompasses both factors. The pursuit of profit normally involves some element of risk, so it isn't really possible to maximize both safety and profit. Unfortunately, these two types of goals are somewhat contradictory. The goals in the second group, involving bankruptcy avoidance, stability, and safety, relate in some way to controlling risk. The goals involving sales, market share, and cost control all relate, at least potentially, to different ways of earning or increasing profits. The first of these relates to profitability. The goals we've listed here are all different, but they tend to fall into two classes. Second, what do we mean by the long run? As a famous economist once remarked, in the long run, we're all dead! More to the point, this goal doesn't tell us what the appropriate trade-off is between current and future profits. First, do we mean something like accounting net income or earnings per share? As we will see in more detail in the next chapter, these accounting numbers may have little to do with what is good or bad for the firm. The goal of maximizing profits may refer to some sort of “long-run” or “average” profits, but it's still unclear exactly what this means. Do we mean profits this year? If so, we should note that actions such as deferring maintenance, letting inventories run down, and taking other short-run cost-cutting measures will tend to increase profits now, but these activities aren't necessarily desirable. Profit maximization would probably be the most commonly cited goal, but even this is not a precise objective. ![]() It's not clear that any of these actions are in the stockholders' best interests. We can avoid bankruptcy by never borrowing any money or never taking any risks, and so on. Similarly, we can always cut costs simply by doing away with things such as research and development. Furthermore, each of these possibilities presents problems as a goal for the financial manager.įor example, it's easy to increase market share or unit sales: All we have to do is lower our prices or relax our credit terms. These are only a few of the goals we could list. ![]() If we were to consider possible financial goals, we might come up with some ideas like the following: Such a definition is important because it leads to an objective basis for making and evaluating financial decisions. This goal is a little vague, of course, so we examine some different ways of formulating it to come up with a more precise definition. Please change your browser preferences to enable javascript, and reload this page.Īssuming that we restrict ourselves to for-profit businesses, the goal of financial management is to make money or add value for the owners. You must have javascript enabled to view this website. ![]()
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