Short-term objective of Financial Management
The short-term objective of Financial Management is to procure financial resources at an affordable cost thereby increasing the return to the shareholders in the form of Earnings Per Share (EPS). EPS comprises two elements namely Dividend per share (DPS) and Retained Earnings per share (REPS or Reserves per share). This objective is often times referred to as “profit maximisation”. This is known as the short-term objective as it is done on a continuous, year-to-year basis. One or more of the following measures can achieve this:
Monitoring of costs on a continuous basis through budgets
Suitable cost reduction techniques wherever the costs are high
Minimisation of cost of borrowed capital from outside through financial discipline
Proper mix of equity and debt (known as financial leverage – for further details please refer to Chapter no. 5 – Operating and financial leverages
Control over liquidity available in the organisation so as to minimise the cost of carrying too much cash etc.
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