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Why maximization of a company share price is preferred as a financial objective to maximization of its sales?
Maximizing a company's share price is preferred as a financial objective because it directly reflects shareholder value and overall financial health, providing a clear measure of a company's performance in the market. While maximizing sales can lead to increased revenue, it doesn't necessarily translate to profitability or sustainable growth. Focusing on share price encourages efficient resource allocation, cost management, and strategic decision-making that contribute to long-term success. Additionally, a higher share price can improve access to capital and enhance the company's competitive position.
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What should be the objective for wealth maximization and profit maximization?
The objective of wealth maximization focuses on increasing the overall value of a company for its shareholders, emphasizing long-term growth and sustainable financial health. In contrast, profit maximization aims to increase a company's immediate earnings, often prioritizing short-term gains. While both objectives are important, wealth maximization is generally seen as a more holistic approach, as it considers risks, market conditions, and the broader impacts on stakeholders. Ultimately, aligning both objectives can lead to a more balanced and successful business strategy.
Why is profit maximization is the main objective of a business?
Profit maximization is the main objective of a business because it ensures financial sustainability and growth, enabling the company to invest in new opportunities, pay employees, and reward shareholders. A focus on profits allows businesses to maintain competitiveness in the market, attract investment, and innovate. Ultimately, maximizing profit aligns with the goal of creating value for stakeholders, including owners, employees, and customers.
What are the objective of financial management . Which objective is most important and why?
To achieve the main object of the company at minimum cost.
Is the maximization of profit margin a valid financial objective of a corporation Discuss?
Yes, the maximization of profit margin is a valid financial objective for a corporation as it directly impacts the company's overall profitability and sustainability. A higher profit margin indicates efficient management of costs relative to revenue, which can enhance shareholder value and provide resources for reinvestment. However, it should be balanced with other objectives, such as customer satisfaction and ethical practices, to ensure long-term success and corporate reputation. Focusing solely on profit margins may lead to short-term gains at the expense of broader stakeholder interests.
Explain why judging the efficiency of financial decision requires the existence of a goal?
The goal of the firm is wealth maximization so efficient financial management requires the existence of goal or objective. The goal of the firm is earning market per share but we can know about best company by finding it's market share price. It is a reflection of the firm's investment, financing, and asset management decisions.
Which is more comprehensive objective profit maximization or shareholder wealth maximization?
If the company is public listed (trades in the stock market) their aim is shareholder wealth maximization whereas for a privately owned firm a profit maximization objective is appropriate.
What should be the objective for wealth maximization and profit maximization?
The objective of wealth maximization focuses on increasing the overall value of a company for its shareholders, emphasizing long-term growth and sustainable financial health. In contrast, profit maximization aims to increase a company's immediate earnings, often prioritizing short-term gains. While both objectives are important, wealth maximization is generally seen as a more holistic approach, as it considers risks, market conditions, and the broader impacts on stakeholders. Ultimately, aligning both objectives can lead to a more balanced and successful business strategy.
Profit maximization is top pririoty objective of CEO?
It depends. If the company is a public company (Ones that have shares traded in organized stock exchanges) then the top priority of the CEO would be shareholder wealth maximization. If it is a private company, the CEO decides on what the owners of the company want and prioritize.
Profit maximization is the basic objective of firm?
A firm's main objective should be to make decisions that maximize the value of the company for its owners, and as the owners of a company are its shareholders, the main financial objective should be 'the maximization of shareholder wealth'. Since shareholders receive their wealth through dividends and capital gains, shareholder wealth will be maximized by maximizing the value of dividends and capital gains that shareholders receive over time. Problems with the 'maximization of profits' objective: Firstly, there are quantitative difficulties associated with profit. Maximization of profits as a financial objective requires the profit to be defined and measured accurately, and that all the factors contributing to it are known and can be taken into account. It is very doubtful that this requirement can be met on a regular basis. E.g- If 5 auditors go into the same company, it is very likely that each will come out with a completely different profit figure. A second problem concerns the timescale over which the profit should be maximized. Should profit be maximized in the short term or the long term?? Given that profit considers one year at a time, the focus is likely to be on short-term profit maximization at the expense of long-term investment, putting the long term survival of the company into doubt. There are many examples of companies going into liquidation shortly after declaring high profits. Check out - Polly Peck Plc's dramatic failure in 1990! (good example) The third problem is that profit does not take account of or make any allowance for risk! It would be inappropriate to concentrate efforts on maximizing accounting profit when this objective does not consider one of the key determinants of shareholder wealth. So the 'maximization of profit' is not a suitable core objective for a company. That is not to say that a company does not need to pay attention to its profit figures, since falling profits of profit warnings are taken by the financial markets as a sign of financial weakness. Instead these sort of profit targets/objectives should can serve a useful purpose in helping a company to achieve short-term or operational objectives within its overall strategic plan.
What are the objective of financial management . Which objective is most important and why?
To achieve the main object of the company at minimum cost.
Does maximization of the company share price depends upon the level of earnings per share that is achieved?
share prices of companies depend on level of earnings of the company,but maximization of share prices depends not only on earnings but also on riskyness of the company's projects, its preferred capital structure ,its corporate responsibility programs,etc
The primary objective of financial accounting is?
increases in equity from a company's earning activities are
What is the purpose of volume pricing?
When a company uses a volume-pricing objective, it is seeking sales maximization within predetermined profit guidelines. A company using this objective prices a product lower than normal but expects to make up the difference with a higher sales volume.
What are the primary objectives of financial managers?
The success or failure of a company, is highly dependent on its ability to effectively manage and increase its value ever fiscal year. The implicit financial management goals for managers and directors of a company, is to run in the interest of shareholders and shareholder wealth for long term profitability.
Is the maximization of profit margin a valid financial objective of a corporation Discuss?
Yes, the maximization of profit margin is a valid financial objective for a corporation as it directly impacts the company's overall profitability and sustainability. A higher profit margin indicates efficient management of costs relative to revenue, which can enhance shareholder value and provide resources for reinvestment. However, it should be balanced with other objectives, such as customer satisfaction and ethical practices, to ensure long-term success and corporate reputation. Focusing solely on profit margins may lead to short-term gains at the expense of broader stakeholder interests.
Explain why judging the efficiency of financial decision requires the existence of a goal?
The goal of the firm is wealth maximization so efficient financial management requires the existence of goal or objective. The goal of the firm is earning market per share but we can know about best company by finding it's market share price. It is a reflection of the firm's investment, financing, and asset management decisions.
The basic objective of financial accounting is?
The basic objective of financial accounting is the formulation of financial statements including the balance sheet, income statement and cash flow statement. Income statements show the company's operating performance quarterly or annually.
