The primary goal of the financial manager is to:
A maximize the value of the firm to its owners
B concentrate on short-term growth strategies
C develop new goods and services for the company
D make sure all employees get paid on a regular schedule
E pay off all debt as quickly as possible
The correct answer and explanation is :
Correct Answer:
A) Maximize the value of the firm to its owners
Explanation:
The primary goal of a financial manager is to maximize the value of the firm to its owners, which typically means maximizing shareholder wealth. In publicly traded companies, this is achieved by increasing the company’s stock price, ensuring sustainable growth, and making decisions that enhance profitability and long-term financial stability.
Financial managers accomplish this by:
- Investment Decisions – Allocating capital efficiently by selecting projects with the highest potential returns, ensuring that resources are used effectively to generate future profits.
- Financing Decisions – Determining the best mix of debt and equity to finance operations while minimizing the cost of capital.
- Risk Management – Identifying and mitigating financial risks, such as market fluctuations, credit risks, and economic downturns, to protect the company’s assets.
- Dividend Policy – Deciding whether to reinvest profits into the business for growth or distribute them to shareholders in the form of dividends.
The other options are incorrect because:
- B) Concentrating on short-term growth strategies may lead to temporary gains but can harm long-term stability and value.
- C) Developing new goods and services is important for innovation but is primarily the role of product managers and R&D teams rather than financial managers.
- D) Ensuring employee payroll is an essential function but falls under operational finance rather than the strategic financial management of firm value.
- E) Paying off all debt quickly is not always the best strategy since some debt can be beneficial if managed wisely to finance growth.
Thus, maximizing firm value aligns with the core responsibility of financial managers.