Role of Financial Management - Objectives of Financial Management (2024)

– Profitability, growth, efficiency, liquidity, solvency

Profitability:maximising profits and making a financial return from business activities. Businesses need to:

• Monitor revenue and pricing policies
• Costs and expenses
• Inventory levels
• Levels of assets

Growth:increasing size and value of business in long term.

Efficiency:maximising return while minimising inputs.

Liquidity:extent to which businesses can meet its short term financial commitments ie short term debts / current liabilities.

• Ensuring cash flow of the business can meet its commitments.

Solvency:whether the business can meet its long-term financial commitments and the long term stability of the business.

– short-term and long-term

• Short term objectives are typically liquidity and solvency.
• Long term objectives are profitability, efficiency and growth.