Question

Gitman says that the goal of a firm is to maximize the wealth of its owners. What can financial managers do to achieve this end?

Answer 1

✓ according Gitman, the goal of a firm is to maximize the wealth of its owners.

It is true that, a business firm is managed and undertaken to achieve its goals, prioritising the maximisation of wealth and profitability. Shareholders of the firm are much concerned about the gains they will earn by their investment and management are concerned about their interest and to increase their compensation.

In order to meet the goal of maximising the wealth of owners, financial managers need to make rational investment decisions. They must advise other managers by analysing the financial data, accounts and help them make further decisions with financial statements, ratio analysis, and guide them to lower the costs wherever possible.

They can advise managers of operations and productions to optimise the use of resources, to cut down costs and to maintain quality, in order to increase sales.

Financial managers can also guide the HR manager to adjust the pay and benefits, and keep the employees motivated with revised incentives and growth plans, for making use of the talent and capabilities for growing the business.

When all these departments are working within a controllable boundaries and are able to maintain quality, they will eventually raise the sales and revenue. Thus, increasing the profitability and growth.