The objectives or goals or financial management are- (a) Profit maximization, (b)

Return maximization, and (c) Wealth maximization. We shall explain these three
goals of financial management as under:

(1) Goal of Profit maximization. Maximization of profits is generally regarded as

the main objective of a business enterprise. Each company collects its finance by
way of issue of shares to the public. Investors in shares purchase these shares in
the hope of getting medium profits from the company as dividend It is possible only
when the company's goal is to earn maximum profits out of its available resources.
If company fails to distribute higher dividend, the people will not be keen to invest
their money in such firm and persons who have already invested will like to sell
their stocks. On the other hand, higher profits are the barometer of its efficiency on
all fronts, i.e., production, sales an management. A few replace the goal of
'maximization of profits' to 'fair profits'. 'Fair Profits' means general rate of profit
earned by similar organisation in a particular area.

(2) Goal of Return Maximization. The second goal of financial management is to

safeguard the economic interest of the persons who are directly or indirectly
connected with the company, i.e.,shareholders, creditors and employees. The all
such interested parties must get the maximum return for their contributions. But
this is possible only when the company earns higher profits or sufficient profits to
discharge its obligations to them. Therefore, the goal of maximization of returns are
inter-related.

3. Goal of Wealth Maximization. Frequently, Maximization of profits is regarded

a the proper objective of the firm but it is not as inclusive a goal as that of
maximising it value to its shareholders. Value is represented by the market price of
the ordinary share of the company over the long run which is certainly a reflection
of company's investment and financing decisions. The log run means a considerably
long period in order to work out a normalized market price. The management ca
make decision to maximize the value of its shares on the basis of day-today
fluctuations in the market price in order t raise the market price of shares over the
short run at the expense of the long fun by temporarily diverting some of its funds
to some other accounts or by cutting some of its expenditure to the minimum at the
cost of future profits. This does not reflect the true wort of the share because it will
result in the fall of the share price in the market in the long run. It is, therefore, the
goal of the financial management to ensure its shareholders that the value of their
shares will be maximized in the long-run. In fact, the performances of the company
can well be evaluated by the value of its share.
In the light of this wide diversity of organisational practices, it is not surprising to
find that in most of the company, financial officer is responsible for the routine
finance functions. The main responsibilities of the financial officer are as follows:

(1) Financial Planning. The main responsibility of the chief financial officer in a
large concern is to forecast the needs and sources of finance and ensure the
adequate supply cash at proper time for the smooth running of the business. He is
to see that cash inflow and outflow must be uninterrupted and continuous. For this
purpose, financial planning is necessary, i.e., he must decide the time when he
needs money, the sources of supply of money and the investment patterns so that
the company may meet its obligations properly and maintain its goodwill in the
market. The financial manager is also to see that there is no surplus money in the
business which earns nothing.

(2) Raising of Necessary Funds. The second main responsibility of the financial
officer is to see the nature of the need, i.e., whether finances are required for long-
term or for short-term. He must assess the alternative sources of supply of finance
taking into view the cost of raising funds, its effect on various concerned parties, i.e,
shareholders, creditors, employees and the society, control and risk in financing and
elasticity in capital structure etc.

(3) Controlling the Use of Funds. The financial manager is also responsible for
the proper utilization of funds. Assets must be used effectively so as to earn higher
profits; inflow and outflow of cash must be controlled in a manner so as to meet the
current as well as future obligations; unnecessary expenditure should be curtailed
and there should be left no possibility for misappropriation of money.

(4) Disposition of Profits. Appropriation of profits is one of the main

responsibilities of the financial manger. He is to advise to the top executive as how
much of the profits should be retained in the business as reserves for future
expansion; how much to be used in repaying the debts; and how much to be
distributed to the shareholders as dividend. On the basis of the advice given by the
financial mange, the resolutions regarding depreciations, reserves, general reserves
and distribution of dividends are carried out in the meeting of the board of directors
of the company.

(5) Other Responsibilities. Over and above, the responsibilities sated above,
there are certain other responsibilities of the financial manger. These are:
(a) Responsibility to owners. Shareholders or stock-holders are the real owners
of the concern. Financial manger has the prime responsibility to those who have
committed funds to the enterprise. He should not only maintain the financial health
of the enterprise, but should also help to produce a rate of earning that will reward
the owners adequately for the risk capital they provide.

(b) Legal Obligations. Financial manager is also under an obligation to consider

the enterprise in the light of its legal obligations. A host of laws, taxes and rules and
regulations cover nearly every move and policy. Good financial management help to
develop a sound legal framework.

(c) Responsibilities of Employees. The financial management must try to

produce a healthy going concern capable of maintaining regular employment at
satisfactory rate of pay under favourable working conditions. The long term financial
interests of management, employees an owners are common.

(d) responsibilities to Customers. In order to make the payments of its

customers' bill, the effective financial management is necessary. Sound financial
management ensures the creditors continued supply of raw material.

(e) Wealth Maximization. Prof. Soloman of Stanford University has argued that
the main goal of the finance function is wealth maximization. The other goals may
be achieved automatically.

In the light of the above discussion, we can conclude that the main responsibility of
the financial manger is not only to maintain the financial health of the organisation
but also to increase the economic welfare of the shareholders by utilizing the funds
in an effective manner.
The essential characteristics of an ideal capital plan may briefly be summarised as
follows:-

(1) Simplicity. The capital plan of a company should be as simple as possible. By

'simplicity' we mean that the plan should be easily understandable to all and it
should be free from complications, and/or suspicion-arising statements. At the time
of formulating capital structure of a company or issuing various securities to the
public, it should be borne in mind that there would be no confusion in the mind of
investors about their nature and profitability.

(2) Foresight. The planner should always keep in mind not only the needs of
'today' but also the needs of 'tomorrow' so that a sound capital structure (financial
plan) may be formed. Capital requirements of a company can be estimated by the
scope of operations and it must be planned in such a way that needs for capital may
be predicted as accurately as possible. Although, it is difficult to predict the demand
of the product yet it cannot b an excuse for the promoters to use foresight to the
best advantage in building the capital structure of the company.

(3) Flexibility. The capital structure of a company must be flexible enough to meet
the capital retirements of the company. The financial plan should be chalked out in
such a way that both increase and decrease in capital may be feasible. The
company may require additional capital for financing scheme of modernisation,
automation, betterment of employees etc. It is not difficult to increase the capital. It
may be done by issuing fresh shares or debentures to the public or raising loans
from special financial institutions, but reduction of capital is really a ticklish problem
and needs statesman like dexterity.

(4) Intensive use. Effective us of capital is as much necessary as its procurement.

Every 'paisa' should be used properly for the prosperity of the enterprise. Wasteful
use of capital is as bad as inadequate capital. There must be 'fair capitalisation' i.e.,
company must procure as much capital as requires nothing more and nothing less.
Over-capitalisation and under capitalisation are both danger signals. Hence, there
should neither be surplus nor deficit capital but procurement of adequate capital
should be aimed at and every effort be made to make best use of it.

(5) Liquidity. Liquidity means that a reasonable amount of current assets must be
kept in the form of liquid cash so that business operations may be carried on
smoothly without any shock to therm due to shortage of funds. This cash ratio to
current ratio to current assets depends upon a number of factors, e.g., the nature
and size of the business, credit standing, goodwill and money market conditions etc.

(6) Economy. The cost of capital procurement should always be kept in mind while
formulating the financial plan. It should be the minimum possible. Dividend or
interests to be paid to share holder (ordinary and preference) should not be a
burden to the company in any way. But the cost of capital is not the only criterion,
other factors should also be given due importance.