IGNOU BCOE 143 2026 - Explain the objectives and functions of Financial Management

Question

Explain the objectives and functions of Financial Management. How does the objective of wealth maximisation guide financial decision-making in the areas of investment, financing, and dividend policy? Illustrate your answer with suitable examples.

12 Feb 2026

Answer :

Word Count : 482

Financial management is a crucial aspect of any business organization, focusing on the planning, organizing, directing, and controlling of financial activities to achieve the firm’s objectives. The primary objectives of financial management are to ensure the procurement of funds at the optimum cost, their efficient utilization, and ultimately to maximize the wealth of the shareholders. This involves balancing profitability, risk, and liquidity, thereby supporting the long-term sustainability and growth of the firm. Two commonly discussed objectives of financial management are profit maximization and wealth maximization, with the latter being more comprehensive as it considers risk, timing, and return on investment. The functions of financial management are diverse and interrelated. Investment decisions, also known as capital budgeting, are concerned with the allocation of funds to long-term assets. Financial managers analyze potential projects using techniques like net present value (NPV), internal rate of return (IRR), and payback period to determine which projects will generate maximum returns relative to their risk. For example, if a company has the option to invest in

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