Profit maximization is an obvious goal of management, but it does not necessarily imply that short-term profit increases will produce long-term sustainable gains for example, a reduction in product quality that lowers production costs will produce a quick increase in profit, but lowered quality standards can also tarnish a company's reputation. Importance of profit maximization (essay sample) september 7, 2017 by admin essay samples, importance of profit maximization profit maximization is the core goal of every business that can be considered to be as an objective of financial management this happens in basic idea, when profit is being maximized in terms of prices or the. Responsibilities of the financial manager also include capital budgeting, cash management, credit management, dividend disbursement, financial analysis and planning, pension management, insurance/risk management, and tax analysis and planning through cost accounting, cost management, governmental reporting, internal control, the preparation of financial statements, and preparing budgets and financial forecasts.
Profit maximization strategies place clear, focused attention on the process of earning as much as possible in the process, however, they may lose sight of other goals and aspects of a company's vision. Problems with profit maximization strategy if managers of any firm want to work in the direction of shareholder wealth maximization, they should look beyond their conventional thinking of owner profit maximization.
Profit maximization has always been considered the primary goal of firmsthe firm's owner is the manager of the firm, and thus, the firm's owner-manager is assumed to maximize the firm's short-term profits (current profits and profits in the near future)today, even when the profit maximizing assumption is maintained, the notion of profits has. Maximizing shareholder wealth is often a superior goal of the company, creating profit to increase the dividends paid out for each common stock shareholder wealth is expressed through the higher price of stock traded on the stock market. Short term profit can be foregone by avoiding some expenditure but in the long run, these expenditures have to be paid for therefore long term profit has to be considered, and not short term profit wealth maximization shows the present value of benefits minus the cost of the investment profit maximization does not factor in risk.
Some of the disadvantages that can result from a company becoming overly focused on profit maximization are the ignoring of risk factors, a lessening or loss of transparency and the compromising of ethics and good business practices.
Advertisements: hypothesis of profit-maximization: advantages, disadvantages and approaches advantages of profit-maximization hypothesis: 1 prediction: the profit-maximization hypothesis allows us to predict quite well the behaviour of business firms in the real world it does not matter that few firms are maximizers in reality what matters is that they behave without too much difficulty. Also discover topics, titles, outlines, thesis statements, and conclusions for your profit maximization essay home custom writing example essays the marketing strategy will also focus on the printing of the adverts and development of billboards to meet maximum consumers the last characteristic is incorporation of research and. In other terms, wealth cannot be maximized if the business is lagging behind in profit maximization profit maximization is a short-term strategy it is a short term strategy because it is usually weighed against certain financial periods, for example annual, semi-annual or quarterly the main aim of profit maximization is to improve the profit of a company drastically within a certain set period.
- financial management techniques the study of financial management techniques involves the assumption that the single objective of commercial entities is the maximization of firm valuation and shareholder wealth it could be argued that in financial management the single objective of commercial entities is the maximization of firm valuation and shareholder wealth.
Limitations of profit maximization objective essays and research papers |the problem with a profit maximization goal is that it fails the main objective of financial management is profit maximization the finance manager tries to earn maximum profits for the company in the short-term and the long-term.