Read the passage and answer the following questions.

GreenTech Solutions, a renewable energy company, focuses on achieving financial stability and growth through robust financial management. The company ensures efficient allocation of business finance to expand operations, adopt new technology, and maintain a competitive edge. Its financial planning is centered on long-term sustainability, balancing profitability with eco- friendly initiatives.

To optimize its capital structure, GreenTech maintains a balanced mix of debt and equity, minimizing the cost of capital while ensuring financial flexibility. The firm undertakes thorough capital budgeting processes to evaluate projects like setting up new solar farms, ensuring only viable investments are pursued. Tools like Net Present Value (NPV) and Internal Rate of Return (IRR) guide decision-making.

GreenTech's dividend decision aligns with its growth strategy. While retaining a significant portion of earnings for reinvestment, the company ensures consistent dividends to satisfy shareholders. This approach strengthens investor confidence while funding expansion plans.

Efficient working capital management ensures smooth day-to-day operations. By optimizing cash flow, managing inventory, and negotiating favorable credit terms with suppliers, GreenTech avoids liquidity issues while meeting short-term obligations.

Through prudent financial strategies, GreenTech achieves its goal of profitability and sustainability, setting an example in the renewable energy sector.

What is the primary goal of financial management?

Maximizing shareholders' wealth

The correct answer is option 2- Maximizing shareholders' wealth.

Maximizing shareholders' wealth is the primary goal of financial management.

The primary aim of financial management is to maximise shareholders’ wealth, which is referred to as the wealth-maximisation concept. 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. The market price of equity share increases, if the benefit from a decision exceeds the cost involved. All financial decisions aim at ensuring that each decision is efficient and adds some value. Such value additions tend to increase the market price of shares. Therefore, those financial decisions are taken which will ultimately prove gainful from the point of view of the shareholders. The shareholders gain if the value of shares in the market increases. Those decisions which result in decline in the share price are poor financial decisions. Thus, we can say, the objective of financial management is to maximise the current price of equity shares of the company or to maximise the wealth of owners of the company, that is, the shareholders.