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|The principle objective of any organization is to maximize the profits and increase the wealth as much as possible.
As a basic principle Carolina Panthers Throwback Jersey , any business organization or firm aims at earning the profits and according to the principle, all the functions of the business will have the profit as the main objective and no organization lags behind in this direction. Nowadays, the profit maximization concept gets slowly changing and the profit alone cannot be the sole and only goal or objective of the finance function on account of the following problems connected with this objective:
a) The term – Profit is an ambiguous concept which is not having precies connotation. E.g. profits can be long term or short term and the profits can be before tax or after tax and so on. In case the profit maximization is accepted as the goal of finance function Buffalo Bills Throwback Jersey , the next question that arises is – “Which types of profits should be maximized?”
b) The profits always go hand in hand with several risks. The more profitable ventures necessarily involve more amount of risk. The owners of the business are normally not interested in earning more and more profits by accepting more risks. In case the profit maximization is accepted as the goal of finance function, it totally ignores the risk factor.
c) Profit maximization as the goal of financial function ignores the time pattern of returns and the objective of profit maximization does not differentiate between the returns received earlier and the returns received later.
d) Profit maximization as the objective does not take into consideration the social considerations as well as the obligations to various interests of the workers, consumers Baltimore Ravens Throwback Jersey , society etc. and the ethical trade practices.
Under the circumstances as mentioned above, profit maximization cannot be the prime objective of the finance function.
Due to the limitations attached with the profit maximisation as an objective of the finance function, it is no more accepted as the basic objective. Nowadays Atlanta Falcons Throwback Jersey , the objective of the business should be to maximize its wealth and value of the shares of the company and this object can also be stated as maximization of value.
The value of an asset is not judged in terms of its cost but in terms of the benefit it produces.
The goal of wealth maximization is supposed to be superior to the goal of profit maximization due to the following reasons:
a) It uses the concept of future expected cash flows rather than expected returns in the form of profits.
b) It considers time value of money and it recognizes that the cash flows generated earlier are more valuable than those generated later. On account of the facts as mentioned above, while computing the value of total benefits, the cash flows are discounted at a certain discounting rate and at the same time Arizona Cardinals Throwback Jersey , it recognizes the concept of risk also by making necessary adjustments in discounting rate.
On account of the facts as mentioned above, the wealth maximization is found to be superior to profit maximization as an objective or goal of finance function. However, it should be noted that wealth maximization goal is only an extension of profit maximization goal. Some manufacturing agencies prepare products those are useful products to each family. But Custom Washington Redskin Jersey , some agencies manufacturers products those are needed in another manufacturing unit. Ferroalloy manufacturers are of this type. These agencies manufacturer ferroalloy, which is required not only to the steel making industries but also required to some other agencies also. Ferroalloy is required to the steel making industries though at less quantity in comparison with other raw materials still; these products are highly useful to produce their products. Therefore, though ferroalloy products are not useful to families directly still; the importance of the ferroalloy manufacturing industries is high to families.
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