What is the primary purpose of financial management?

The primary purpose of financial management is to maximize the value of the firm for its shareholders. This involves making informed decisions regarding investments, capital structure, and allocating resources efficiently. By doing so, financial management seeks to enhance the overall financial performance of the company, which in turn increases shareholder wealth represented by the stock price or dividends.

Maximizing shareholder value may include strategies such as investing in profitable projects, managing risks effectively, and ensuring sustainable growth. This approach aligns management's goals with those of the shareholders, emphasizing the importance of creating long-term profitability and efficiency.

While minimizing expenses, increasing employee satisfaction, and ensuring regulatory compliance are important considerations in business operations, they ultimately serve as means to support the overarching goal of enhancing the firm's value for shareholders. Therefore, the focus on shareholder value captures the essence of sound financial management practices.