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ACCA Strategic Professional · Advanced Financial Management · Financial strategy formulation

Zentra plc's finance director is asked to recommend a dividend and gearing policy. Which statement best describes the primary objective that AFM treats as the foundation of financial strategy for a listed company?

The foundation objective is maximising shareholder wealth, delivered through dividends and capital growth over the long term. EPS or revenue maximisation ignores risk, timing and financing cost, and minimising tax alone is a constraint rather than the overall objective of financial strategy.

  1. AMaximising reported earnings per share in each year
  2. BMaximising shareholder wealth through dividends and capital growth over the long termCorrect
  3. CMaximising the company's revenue growth rate regardless of financing cost
  4. DMinimising the company's total tax charge in every jurisdiction

Explanation

In AFM, the normal assumed objective of financial strategy is maximising shareholder wealth, measured by dividends plus capital gain (total shareholder return). Maximising EPS is a short-term accounting measure that can be manipulated and ignores risk and timing.

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