Discussion on the Selection of a Company’s Financial Management Goal

Yu+Zijin

【Abstract】The social environment continues to develop and the economic environment continues to optimize while the controversy on the target of a company has never stopped till now. One of the most typical mainstream and financial management objectives are the following， which are to maximize profits， maximize shareholder wealth maximization and enterprise value.Different financial goals have different impact on the proceeding of a series production and business activities in a company.Picking up a financial management objectives that suits for a firm in a scientific and rational way is essential to its future prospect.This article is to present their respective advantages and disadvantages described and compared among three popular financial management goal to make an in-depth discussion on the selection of a companys financial management objectives.

【Key words】company； financial management； target

Ⅰ. To Maximize Profitsof Companies

Some scholars believe a company is a form of economic organization that is established by law and forprofits.A company runs behind the maximization of profits has its reasonability and in accordance with the fundamental purpose of the establishment itself， which also acts as the main source of income among those investors， shareholders for example.The goal of maximizing profits is not only good for shareholders， but is also does well to the company.

However， in recent years， the profit-maximizing point is criticized by some people and is regarded as negative on the grounds that it does not take time value of money and risk into account as well asnot considering the relationship between inputs and outputs.As a result， thefinancial decisions prone to be a short-term behavioraffecting the companys long-term development.

Ⅱ. To Maximize Shareholder Wealth

Majorities of companies nowadays are set up by shareholders for the purpose of the expansion of their existing wealth at hand in order to reach the ultimate goal of picking up more benefits as many as possible. Compared to the profit maximization objective， the shareholder wealth maximization refers that the presence of risk factors can have a significant impact on the stock price. At the same time， its able to keepa company from pursuing short-term profits to some degree for that not only current profits will influence the stock market prices， sofuture profits will.

However， the maximization of shareholder wealth of courseneeds the stock market price to reflect， thus there exists a relatively clear value displayed in listedcompanies， while is difficult to apply in thosenon-listed companies.

Ⅲ. To Maximize theValue of a Company

This kind of perspective reflect the requirements of keeping and increasing the value ofa company and emphasizes its future profitability， rather than the current level of profits， namely the performance of the market value of tangible and intangible assets of a corporation， not book value of each asset. Apart from that， the goal also highlights efforts to harmonize the relationship between the various stakeholders， try to meet the requirements of all stakeholders at the top limit.

However， the main problem exists in its relatively large subjectivity on standards and methods used in the proceeding of the evaluation of a companys value.Avariety of changes could occur at any time with different individuals.

In general， we believe that nothing more can be much more appropriate than taking the amended and adjusted profit maximization as the ultimate management objective. To begin with， to maximizeprofits is not equivalent to maximize benefits.Profit maximization is to maximize the value that refers to the net results of the companys production and management process. In addition， the profit maximization requires both the reporting period of a corporation and should also include a longer period of time within. Last but not least， the proposed management objectiveof profit maximization which is affected by manyother uncontrollable factors is only a relatively ideal concept. So in actual work， takinga companys second goal of the optimization is common to see.

To identify a proper financial management target is an important aspect of a company financial management.A good grasp of its directionis beneficial to the smooth conduct of an enterprise daily operation.

References：

[1]Feng Xing，the Understanding of Maximizing the Shareholder Wealth in the Financial Management Objective[J].Knowledge Economy，2012（02），10-13.

[2]Wang Qidong，on the Enterprise Financial Management Objectives[J].The Journal of Shanxi Finance and Economics University，2013（Z2），101-103.