The goal of financial manager

Almost every firm, government agency, and other type of organization employs one or more financial managers. Financial managers oversee the preparation of financial reports, direct investment activities, and implement cash management strategies. Managers also develop strategies and implement the long-term goals of their organization.

The financial manager is an important position within the structure of any firm. Almost every firm of any size has a person whose role is "to create value from the firm's capital budgeting, financing, and net working-capital activities" (Ross, 2005). This person is the financial manager, although that job may go by one of several different names. Financial managers oversee the preparation of financial reports, execute cash management strategies, and direct a corporation's investment activities. Increasingly, this job has also included detailing and implementing a corporation's long-range goals as well as those in the short term.

The goal of the financial manager should be to achieve the objectives of the firm's owners. In the case of corporations, the owners of a firm are normally distinct from the managers. The manager's function is not to fulfill their own objectives. It is, rather, to maximize the owner's (stockholders') satisfaction. Presumably, if the managers are successful in this endeavor, they will also achieve their personal objectives.

The owner of a share of stock can expect to receive a return in the form of periodic cash dividend payments, through increases in the stock price, or both. The market price of a share of stock reflects a perceived value of expected future dividends as well as actual current dividends; a shareholder's (owner's) wealth in the firm at any point in time is measured by the market price of his or her shares. If a stockholder in a firm wishes to liquidate his or her ownership, he or she has to sell the stock at or near the prevailing market price. Because it is the market price of the stock, and not the profits, that reflects an owner's wealth in a firm at any time, the financial manager's goal should be to maximize the market price of the stock, and thus the stockholder's wealth.

Profit maximization is a short-run approach; wealth maximization considers the long run. A firm wishing to maximize profits could purchase low-grade machinery and use low-grade raw materials while making a strong sales effort to market its products at a price that yields a high profit per unit. This short-run strategy could result in high profits for the current year, but in subsequent years sales might decline significantly due to the low quality and the high maintenance costs associated with low-grade machinery. The impact of falling sales and rising costs, if unchecked, could result in the eventual bankruptcy of the firm.

Profit maximization does not consider risk; wealth maximization gives explicit consideration to differences in risk. A basic premise of financial manager.