Question

Explain the goal of the firm and how manager decisions in the areas of working capital management and capital structure act to achieve this goal. HTML Editore B T

Answer 1

The goal of the firm is to maximize the profits of the business and it is the goal which is sought by a large number of stakeholder because increase in organisational wealth will mean increase in value of shareholders and other stakeholders and it will also mean that business will be sustainable in the longer period.

Manager decision in the areas of Working Capital Management would be to increase the working capital of the company regularly so there would be a better liquidity in the hands of the company by better management of the current asset as well as current liabilities and they will be trying to have ample cash and current assets to dispose of their liabilities in order to have a better liquidity so that they can strengthen their position in short run.

Capital structure decisions are also related to combination of capital in such a way which will be effective in order to maximize the overall rate of return so a business should always be trying to maintain an optimal capital structure which will be helpful in order to generate a high rate of return by beating the overall cost of capital which will maximize the overall value of the company in the long run and hence capital structure would be very important for the goals of managers.