The goal of finance is to create value for shareholders from "summary" of How Finance Works by Mihir Desai
Finance is all about creating value for shareholders. This is the fundamental goal that drives all financial decisions within a company. When we talk about creating value for shareholders, we are referring to increasing the wealth of the owners of the company - the shareholders. Shareholders are the individuals who have invested their money into the company by purchasing its stock. By doing so, they become part owners of the business. As owners, shareholders expect a return on their investment in the form of dividends and capital appreciation. This return is what drives the decisions made by companies from a financial perspective. In order to create value for shareholders, companies must make sound financial decisions that ultimately lead to the maximization of shareholder wealth. This involves making strategic investments, managing risks effectively, and optimizing the company's capital structure. One way that companies can create value for shareholders is by generating profits. Profitability is a key indicator of a company's financial health and its ability to generate returns for shareholders. By increasing profits, companies can increase the value of their stock and attract more investors. Another way to create value for shareholders is through growth. Companies can achieve growth by expanding into new markets, developing new products, or acquiring other businesses. By growing the company, shareholders can benefit from increased revenues and higher stock prices.- The goal of finance is to align the interests of shareholders with those of the company. By creating value for shareholders, companies can attract more investors, increase their stock price, and ultimately thrive in the competitive business landscape. Finance is the tool that companies use to achieve this goal and maximize shareholder wealth.
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