Objectives of financial management and its advantages and disadvantages

The main objectives of financial management are to maximize profits, maximize shareholder wealth, maximize enterprise value, maximize the interests of stakeholders.

1, profit maximization

Advantages: ① profit indicator is simple to calculate, easy to understand; ② is conducive to the rational allocation of enterprise resources; ③ is conducive to the improvement of the overall economic efficiency of enterprises.

Disadvantages: ① does not take into account the time of profit realization and the time value of money; ② does not take into account the issue of risk; ③ does not reflect the relationship between the profit created and the capital invested; ④ may lead to short-term financial decision-making tendency, affecting the long-term development of enterprises.

2, shareholder wealth maximization

Advantages: ① Considering the risk factor; ② to a certain extent to avoid short-term behavior; ③ for listed companies, the goal of maximizing shareholder wealth is easier to quantify, easy to assess and reward and punishment.

Disadvantages: ① usually only for listed companies, non-listed companies are difficult to apply; ② share price can not accurately reflect the financial management of the enterprise; ③ emphasize more on the interests of shareholders, and not enough attention to the interests of other stakeholders.

3, enterprise value maximization

Advantages: ① Considering the time to obtain compensation, and measured by the principle of time value; ② Considering the relationship between risk and compensation; ③ can overcome the short-term behavior of enterprises in the pursuit of profits; ④ value instead of price, avoiding too much interference by external market factors, effectively avoiding the short-term behavior of enterprises.

Disadvantages: ① too theoretical, not easy to operate; ② for non-listed companies, only a specialized assessment of the enterprise to determine its value, and in the assessment, due to the impact of the assessment standards and assessment methods of assessment is difficult to be objective and accurate.

4, maximize the interests of stakeholders

Advantages: ① conducive to the long-term stable development of the enterprise; ② reflects the value concept of cooperation **** win; ③ reflects the unity of forward-looking and realistic.

Disadvantages: too idealized and unworkable.

Warm tips: the above information is for reference only.

Answer time: 2021-04-14, the latest business changes please refer to the Ping An Bank official website announcement.

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