Explaining the Goal of Financial Management and the Role of Ethics Essay

It has always been the oddment of the financial managers to maximize the wealth of the shareholders of the firm. That is to say, we maximize the potential benefits that the firms stakeholders make up by increasing the measure of the firm in which these shareholders have taken the risk of investing to. According to Ingram (1992), the worth of a company is reliant on the capacity of the assets to produce cash flows over a detail of time.This means that if the firm is able to generate a positive clams cash flow including a reasonable dividend to its owners, then it said that value is created. Firms face two kinds of loot. They are accounting profits and economic profits. maximising accounting profits normally refers to the general corporate goal of maximising profits as maximizing economic profits generally refers to maximizing the shareholders wealth.Ingram (1992) has distinguished them by defining accounting profits as the income accumulated afterwards the overall cost is deducted from the overall receipts before the payment to shareholders is considered and economic profits as the income accumulated after compensating for the factors of merchandise such as capital, labor and others. Moreover, she differentiated the two by saying that accounting profit does not consider all the factors of production as economic profit does and that it also does not consider compensating the shareholders for pickings the risk in investing in the firm.Maximizing wealth does not consequently mean that the firm has to face an unethical decision making. It is slake up to the firm as to how it will perform this task. As consort to Goizueta (1997), everyone in the company would be better of if it plans for a long-term goal rather than a short-term goal. Through this, the firm can bland plan on how it will maximize the wealth and at the resembling time be consistent with ethical standards.