Given our goal as stated in the preceding section (maximize the value of the stock), an obvious question comes up: What is the appropriate goal when the firm has no traded stock? Corporations are certainly not the only type of business; and the stock in many corporations rarely changes hands, so its difficult to say what the value per share is at any given time. As long as we are dealing with for-profit businesses, only a slight modification is needed. The total value of the stock in a corporation is simply equal to the value of the owners equity. Therefore, a more general way of stating our goal is as follows: maximize the market value of the existing owners equity. With this in mind, it doesnt matter whether the business is a proprietorship, a partnership, or a corporation. For each of these, good financial decisions increase the market value of the owners equity and poor financial decisions decrease it. In fact, although we choose to focus on corporations in the chapters ahead, the principles we develop apply to all forms of business. Many of them even apply to the not-for-profit sector. Finally, our goal does not imply that the financial manager should take illegal or unethical actions in the hope of increasing the value of the equity in the firm. What we mean is that the financial manager best serves the owners of the business by identifying goods and services that add value to the firm because they are desired and valued in the free marketplace.

a What is the goal of financial management?

b What are some shortcomings of the goal of profit maximization?

c Can you give a definition of corporate finance?

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Sure Here are the answers to your questions a The goal of financial management is to maximize the market value of the existing owners equity 1 b Some ... View the full answer