Explain the goal of financial management Explain the conflict of interest that can occur between managers and shareholders

A) There are two primary goals of financial management for an organization.

1) Maximizing Revenue Goal:
Maximizing revenue goals means that appropriate financial actions and decisions will increase profit earning as well as assist in minimizing unnecessary and unwanted expenses. It is the primary duty of financial managers and financial supervisors to select right assets, projects that are achievable and profitable and should be sound enough to reject those projects which are not in the goals of financial management.

2 Maximizing Shareholders Value:
Maximizing shareholder value relates that your managers should take appropriate decisions to optimize the value of a company. The worth of the company is sum of the equity and debt market value. Debt holders posses fixed claim to a company. Therefore if worth of a company is maximized, the market value of a company’s equity will also increases. This means that shareholder will earn more profits from the growth of an equity value. This goal is considered to be superior than the maximizing revenue goal. This is mainly due to reasons like: Benefits of quality product, clear and definite goals, reduces conflicts towards shareholders interest, etc.

B) The conflict of interest between managers and stockholders is known as the agency problem. In general, the agency problem takes place when the agents do not act in the best interests of principals. Hence, according to this theory, the conflict may arise between managers which are the agents and stockholders which are principals. This conflict is usually caused by the fact that managers do not try to maximize the stockholder's wealth which is typically the most important interest of the investors. It is often observed that the managers focus on their personal benefits or short-term goals instead of actions to continuously increase the company's value. This is the basic conflict which arises between two parties.

C) The accounting value of an asset is its original purchase cost, adjusted for any subsequent changes, such as for impairment or depreciation and recorded in the books of accounts . Where as Market value is the price that is obtained by selling an asset in a competitive open market.

D) Accounting income refers to  revenue - expenses, which is recorded in income statement. Where as Cash flow is when cash is actually changing hands, either coming in or leaving. It is recorded in the cashflow statement and hence should be used while taking any decision.