What is the primary aim of financial management in an organization?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → To maximize the wealth of shareholders
Option (1) To minimize the risk of investors — Incorrect. Risk is one factor a finance manager weighs in each decision. It is not the main aim.
Option (2) To maximize the profit of company — Incorrect. Profit maximisation looks only at the amount of profit. It ignores when the profit comes and how risky it is. Wealth maximisation is the wider aim.
Option (3) To minimize the loss of owner — Incorrect. Avoiding loss is too narrow to be the aim of every financial decision.
Option (4) To maximize the wealth of shareholders — Correct. Under the wealth-maximisation concept, a financial decision is good if its benefits exceed its cost, so that value is added. This raises the market price of the equity shares, and the shareholders, who own the company, become richer.
NCERT (2026-27 Edition): “Objectives The primary aim of financial management is to maximise shareholders’ wealth, which is referred to as the wealth-maximisation concept. The market price of a company’s shares is linked to the three basic financial decisions which you will study a little later. This is because a company funds belong to the shareholders and the manner in which they are invested and the return earned by them determines their market value and price. It means maximisation of the market value of equity shares. …” |
Note: The same/similar question has been asked in different years by NTA as per the details given below:
| 2026 | 2025 | 2024 | 2023 | 2022 |
| 29-05 S1 24-05 S1 11-05 S2 | 30-05 S1 15-05 S1 | – | 29-05 S3 | – |