The Importance of Financial Managers? - First of all, we need to know “The importance of financial managers and Finance ?” to understand what is the optimal goals of the financial managers should be and how its effect! So, any company, whether it is a small-town bakery or General Motors, needs money to operate. To make money, it must first spend money—on inventory and supplies, equipment and facilities, and employee wages and salaries. Therefore, finance is critical to the success of all companies It may not be as visible as marketing or production, but management of a firm’s finances is just as much a key to the firm’s success. - Financial management—the art and science of managing a firm’s money so that it can meet its goals—is not just the responsibility of the finance department. All business decisions have financial consequences. Managers in all departments must work closely with financial personnel. The Goals of Financial Managers? - The goal of financial managers is divided into three main parts as the following “Profit Maximization - Wealth Maximization - Social Responsibility”, We have to go deeply into the definition of each part of these goals to know the optimal goal that the financial managers should consider which affects the firm's results. Definitions Profit Maximization and Wealth Maximization? What is Profit Maximization (Traditional Approach)? - Profit Maximization is the capability of the firm in producing maximum output with the limited input, or it uses minimum input for producing stated output. It is termed as the foremost objective of the company. - It is mainly a short-term goal and is primarily restricted to the accounting analysis of the financial year. It ignores the risk and avoids the time value of money. It is primarily concerned with how the company will survive and grow in the existing competitive business environment. What is Wealth Maximization (Modern Approach)? - Wealth maximization is the ability of a company to increase the market value of its common stock over time. The market value of the firm is based on many factors like their goodwill, sales, services, quality of products, etc. - It is the versatile goal of the company and highly recommended criterion for evaluating the performance of a business organization. This will help the firm to increase its share in the market, attain leadership, maintain consumer satisfaction and many other benefits. - The universally accepted goal of a business entity has been to increase the wealth for the shareholders of the company as they are the actual owners of the company who have invested their capital, given the risk inherent in the business of the company with expectations of high returns. Wealth Maximization vs. Profit Maximization Infographics Comparative between Profit Maximization and Wealth Maximization? Basis Profit Maximization Wealth Maximization Definition It is defined as the management of financial resources aimed at increasing the profit of the company. It is defined as the management of financial resources aimed at increasing the value of the stakeholders of the company. Goal Focuses on increasing the value of the stakeholders of the company in the long term. Focuses on increasing the profit of the company in the short term. Risk It does not consider the risks and uncertainty inherent in the business model of the company. It considers the risks and uncertainty inherent in the business model of the company. Usages It helps in achieving efficiency in the company’s day-to-day operations to make the business profitable. It helps in achieving a larger value of a company’s worth, which may reflect in the increased market share of the company. Conclusion and Optimal Goals As mentioned above in the definitions and comparative between Profit and Wealth Maximization and although that Profit maximization does not take the concepts of risk and reward into account as shareholder maximization does. The goal of Profit maximization is, at best, a short-term goal of financial management and Wealth Maximization considers the interest concerning shareholders, creditors or lenders, employees, and other stakeholders. Hence, it ensures building up reserves for future growth and expansion, maintaining the market price of the company’s share, and recognizes the value of regular dividends, but when it comes to decisions concerning shareholders, then Wealth Maximization is the way to go. So, in my opinion, and as Profit Maximization and Wealth Maximization is a very common but very crucial dilemma that the vision, mission, and the company goals and industry will be the deciding factor in choosing the optimal goal. ==== References The Balance Small Business Key Differences MSG WallStreetMojo INTRODUCTION TO BUSINES