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Profit maximisation (3)

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SYED ADNAN ALAM
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22 views

Profit maximisation (3)

Uploaded by

SYED ADNAN ALAM
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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University School of Business

Bachelor of Business
Administration
FINANCIAL MANAGEMENT

FINANCIAL MANAGEMENT DISCOVER . LEARN .


OVERVIEW EMPOWER
FINANCIAL
MANAGEMENT
OVERVIEW
Course Outcome
CO Title Level https://www.google.com/search?q=financial+ma
Num nagement+overview&rlz=1C1CHZL_enIN710IN
710&source=lnms&tbm=isch&sa=X&ved=2ahU
ber KEwjiuubYmZbmAhVGzDgGHUnGANEQ_AUo
Have understanding of different areas of financial AnoECBAQBA&biw=1366&bih=667#imgrc=1sh
pe7wx3LXeNM:
CO1 management related to financial planning, Remember
organizing and controlling
Facilitate decision making relating to long term
CO2 Understand
investments
Have an outlook of the working capital and dividend
CO3 Understand
policy of an organization

2
OBJECTIVES OF FINANCIAL
MANAGEMENT
Profit Maximization
Wealth Maximization
PROFIT MAXIMIZATION
Profit maximization is also called as cashing per share maximization. It leads
to maximize the business operation for profit maximization.
Ultimate aim of the business concern is earning profit, hence, it considers all
the possible ways to increase the profitability of the concern. Objectives
Profit is the parameter of measuring the efficiency of the business concern. So
it shows the entire position of the business concern.
Profit maximization objectives help to reduce the risk of the business.
ARGUMENTS FOR PROFIT
MAXIMIZATION
Favorable Arguments for Profit Maximization
(i) Main aim is earning profit.
(ii) Profit is the parameter of the business operation.
(iii) Profit reduces risk of the business concern.
(iv) Profit is the main source of finance.
(v) Profitability meets the social needs also.
Unfavorable Arguments for Profit Maximization
(i) Profit maximization leads to exploitation
(ii) Profit maximization creates immoral practices
(iii) Profit maximization objectives leads to inequalities among the sake holders
such as customers, suppliers, public shareholders, etc.
Objections to Profit
Maximization
 It is vague
 It ignores the timing of returns
 It ignores risk
Vague
• Definition of profit : the precise meaning of the profit maximization
objective is unclear. The definition of the term profit is ambiguous. Does it
mean short or long-term profit? Does it refer to profit before or after tax?
Total profits or profit per share? Does it mean total operating profit or profit
accruing to shareholders? Time value of money the profit maximization
objective does not make an explicit distinction between returns received in
different time periods. It gives no consideration to the time value of
money, and it values benefits received in different periods of time as the
same.
Uncertain returns
• Uncertainty of returns the streams of benefits may possess different
degree of certainty. Two firms may have same total expected earnings, but
if the earnings of one firm fluctuate considerably as compared to the other,
it will be more risky. Possibly, owners of the firm would prefer smaller but
surer profits to a potentially larger but less certain stream of benefits
Ignores Timing of return
• Time value of money The profit maximization objective does not make an
explicit distinction between returns received in different time periods. It
gives no consideration to the time value of money, and it values benefits
received in different periods of time as the same.
ASSESSMENT
PATTERN

10
APPLICATIONS

• To know the Approaches of financial management


• To know about Scope of Finance

11
REFERENCES
http://qu.edu.iq/ade/wp-content/uploads/2016/02/financial_management_
www.accfile.com_.pdf
Maheshwari S.N. “Principles of Financial Management”, Sultan Chand &
Sons, New Delhi
Kulkarni P.V. “Financial Management”, Himalaya Publishing House,
Mumbai

.
THANK YOU

For queries
Email: [email protected]

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