Page 9 - DMGT405_FINANCIAL%20MANAGEMENT
P. 9
Unit 1: Introduction to Financial Management
Notes
Income Statement and Topics in Financial Management
Self Assessment
Fill in the blanks:
1. In the earlier years, financial manageemnt was treated synonymously with the
...............................
2. Financial management broader scope includes efficient use of resources in addition to the
...............................
3. Current liabilities are associated with ............................... financing policy.
4. ............................... profit margin is obtained by deducting cost of goods sold from net sales.
1.2 Goals/Objectives of Financial Management—Profit Maximization
vs. Wealth Maximization
Traditional Approach—Profit Maximization
It has been traditionally argued that the objective of a company is to earn profit. This means that
the finance manager has to make decision in a manner that the profit is maximised. Each
alternative, therefore, is to be seen as to whether or not it gives maximum profit.
Profit maximization objective gives rise to a number of problems as below:
1. Profit maximization concept should be considered in relation to risks involved. There is a
direct relationship between risk and profit. Many risky propositions yield high profit.
Higher the risk, higher is the possibility of profits. If profit maximization is the only goal,
then risk factor is altogether ignored.
LOVELY PROFESSIONAL UNIVERSITY 3
