Goals of Financial Management

Every firm has a goal or objective,  and it is easier to make decisions after setting the goal. Generally, business firms are established to achieve certain goals  that may be sales maximization, profit maximization and wealth maximization in-terms of economics, meanwhile, there are two types of goal in -terms of finance that is profit maximization and wealth maximization.
Hence, following are the goals of financial management
a) Profit Maximization
b) Wealth Maximization

a) Profit Maximization= Profit Maximization is one of the important goals of financial management and  is the single period and  short term goal of the firm, which is achieved in a year. It is refers to the maximization of rupee income of the firm.. Financial manager should select the best alternative, which gives maximum return(profit). Profit maximization is the process of identifying the most efficient way of obtaining the highest rate of return from it's production.

Benefits of Profit Maximization  
We can drawn following benefits of profit maximization
a) Profit Maximization is the main controlling of the performance, it is the primary objective of the firm.
b) Each firm established to earn maximum profit
c) Profit efforts efficient allocation of the resources
d) Profit motivated businessperson to continue the business
e) Profit encourage businessperson to innovate new concept
f) Profit is the means of salary, wages, incentives and return for stake holders of the firm
g) Profit is the source for continues supply of the raw materials
Weakness of Profit Maximization 
Though we have pointed out above benefits of profit maximization, some weakness are also drawn which are as follows.
a) Profit Maximization objective is vague
b) Profit Maximization is not clear, whether it means short term or long term, total profit, net profit, gross profit, after tax or before tax
c) Profit Maximization ignores time value of money
d) It ignores risk factor associated with it
e) It is concerned only with owners welfare and ignores social welfare, creditors, investors and government

Year	1	2	3	Total
Project A	Rs 20000	Rs 10000	Rs 40000	Rs 70000
Project B	Rs 40000	Rs 5000	Rs 25000	Rs 70000

In above example, both projects have equal return in aggregate( Rs 70000) and profit maximization would select both projects since both have equal profit. Meanwhile, if we assume the time value of money at the rate of 10%. Project B would be better for investor since higher profit( Rs 40000> Rs 20000) is earned at the beginning of the period and we can further reinvest the return amount. Thus, Profit Maximization does not consider time value of money, reinvestment rate and risk factor.

b) Wealth Maximization = Wealth Maximization is long run objective of the firm and is also known as value maximization and is regarded as the maximizing the total market or market price of the existing shareholders common equity . The goal of finance manager should be to maximize the shareholder's wealth and wealth of the shareholder is measured by the stock price and stock price is depended on the timing of returns, cash flow and risk. Value maximization applies the principle of time value of money  ( A rupee received today is worth more than it is to be received 1 year later and by considering the time value of money, this will lead to an overall increase in the company's earning. This goal is simple and  considers time value of money, reinvestment rate and risk factors.

Benefits of Wealth Maximization 
We can drawn following benefits of wealth maximization
a) Wealth Maximization is clear objective of the firm i.e maximization of Net Present Value
b) It considers time value of money
c) It considers risk factor
d) It considers reinvestment rate
e) It is concerned with the welfare of investors, society, government, and all stake holders

Year	1	2	3	Total
Project A	Rs 500000	Rs 100000	Rs 400000	Rs 1000000
Project B	Rs 400000	Rs 300000	Rs 300000	Rs 70000

In above example, both projects have equal return of Rs 1000000 and wealth maximization would select project A since it has higher earning in the beginning and we can further  invest it.