Why judging the efficiency of any financial decision requires the existence of a goal?

Answer 1

Efficient financial management requires the existence of objective or goal, because judgment as to whether or not a financial decision is efficient must be made in light of some standard. Although various objectives are possible, the goal of the firm is to maximize the wealth of the firm's present owners. Shares of common stock give evidence of ownership in a corporation. Shareholder wealth is represented by the market price per share of the firm's common stock, which, in turn, is a reflection of the firm's investment, financing, and asset management decisions. The idea is that the success of a business decision should be judged by the effect that it ultimately has share price.

Answer 2

Judging the efficiency of a financial decision requires the existence of a goal because efficiency is a measure of how well resources are utilized to achieve that specific goal. Without a clear goal, there is no benchmark against which to assess the effectiveness of the decision. Goals provide the criteria for evaluating whether the decision was successful in achieving the desired outcome within the constraints of available resources. In the absence of a goal, it becomes challenging to determine whether a financial decision was efficient or not.