Do financial managers focus on profit maximization? (2024)

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Do financial managers focus on profit maximization?

Building on those pillars, financial managers help their companies in a variety of ways, including but not limited to: Maximizing profits: Provide insights on, for example, rising costs of raw materials that might trigger an increase in the cost of goods sold.

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Is profit maximization an appropriate goal for financial managers?

Profit maximization is an inappropriate goal because it's short term in nature and focus more on what earnings are generated rather than value maximization which comply to shareholders wealth maximization. Wealth maximization overcomes all the limitations that profit maximization possesses.

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What is profit Maximisation in financial management?

Profit maximization is when a business achieves its highest revenue or profit. The profit maximization theory assumes that the goal of a company is to make the highest profits possible. The sales level at which profit maximization happens is when marginal revenue and marginal cost are equal.

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Is financial management concerned with maximization?

The traditional approach to financial management is primarily concerned with the process of procuring of financial resources to maximize the wealth of equity shareholders.

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What is the main goal of the financial manager?

Typically, the primary goal of financial management is profit maximization. Profit maximization is the process of assessing and utilizing available resources to their fullest potential to maximize profits. This has the greatest benefit for company shareholders hoping for the highest possible return on their investment.

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Why is profit maximization important in financial management?

Profit maximization also allows businesses to invest in marketing, product development, and other areas that provide a competitive edge. Organizations with slim profit margins will find it harder to compete with competitors and ultimately become unsustainable.

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Why profit maximization is not a primary goal for finance managers?

While earning a profit is the goal of every business, profit maximization in financial management can put too much emphasis on profits and not enough emphasis on other aspects of the business such as customer retention, social and economic well-being, and other goals and aspects of the company.

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Why profit maximization is criticized?

Profit maximization objective is a little vague in terms of returns achieved by a firm in different time period. The time value of money is often ignored when measuring profit. It leads to uncertainty of returns. Two firms which use same technology and same factors of production may eventually earn different returns.

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What is profit maximization in financial management advantages and disadvantages?

While profit maximization can lead to increased revenue, job creation, and shareholder value, it can also have negative consequences such as ethical concerns, a short-term focus, reduced quality, and a negative impact on stakeholders.

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Is the main objective of financial management is profit maximization True or false?

The statement is False. Explanation: Profit maximization refers to maximizing the earnings of the firm and it is not the primary or the main goal of financial management. Maximizing the wealth of the shareholders is the ultimate goal of any firm.

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What are the three major functions of the financial manager?

The three basic functions of a finance manager are as follows:
  • Investment decisions.
  • Financial decisions.
  • Dividend decisions.

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What are the three major functions of financial managers role of the financial manager?

Answer and Explanation: The three major functions of a finance manager are; investment, financial, and dividend decisions. Firstly, the investment decision entails determining assets that the firm needs or projects it needs.

Do financial managers focus on profit maximization? (2024)
What is the most important decision a financial manager makes?

The correct answer is a. The financial manager's most important job is to make the firm's investment decisions. This, also known as capital budgeting, is the most important job for this type of manager. This individual has to look at and prioritize investment alternatives.

What are the three major decisions that most concern financial managers?

It deals in three main dimensions of financial decisions namely, Investment decisions, Financial decisions and Dividend decisions.
  • Investment Decisions. Investment decisions refer to the decisions regarding where to invest so as to earn the highest possible returns on investment. ...
  • Financial Decisions. ...
  • Dividend Decisions.

Is profit maximization good or bad?

Businesses maximize their profits to make money, which is not only a benefit, but something all companies need to survive. This is the “default” state of any organization, so to speak, and it should be your primary, long-term goal if you want to see your business flourish.

Is profit maximization a bad thing in business why or why not?

Profit maximization can spell bad news for customers if a company supplies inferior products or uses cheaper, lower-caliber materials solely to make more money.

Why is profit maximisation unrealistic?

The limits of capacity, market share, and sales, all constitute constraints on the company and its ability to maximise profits in the short term. These are things which the entrepreneur/administrator will be constantly trying to change.

What is a major drawback of profit maximization?

Drawbacks of profit maximization include: risks associated with cashflows, the interests of stakeholders, and the timing of returns. Profit-oriented firms ignore the risks associated with cashflows.

Is profit maximization unethical?

While many companies grow profits ethically, others maximize profits unethically in many different ways. Either though marketing, slashing employee expenses/benefits or lowering quality of a product or service. But this usually does much more harm the good over the course of time.

What are two weaknesses of profit maximization?

Disadvantages of profit maximisation
  • 'Profit' definition is unclear: Different perceptions of the term exist among organisations and individuals. ...
  • Time value of money is ignored: The formula is based on the idea that the higher the profit, the better the proposal, but what about its timing?

What are the arguments in favor of profit maximization?

The efficiency argument for profit maximization says that corporations and their managers should maximize profits because this is the course of action that will lead to an 'economically efficient' or 'welfare maximizing' outcome (see e.g. Jensen 2001, 2002).

What is an example of profit maximization?

Marginal revenue equals zero when the total revenue curve has reached its maximum value. An example would be a scheduled airline flight. The marginal costs of flying one more passenger on the flight are negligible until all the seats are filled. The airline would maximize profit by filling all the seats.

Which objective of financial management is superior?

Profit Maximization

Hence, it is the most important objective of financial management. The finance manager is responsible to achieve optimal profit in the short run and long run of the business.

What do financial managers try to maximize and what is their second objective?

The primary objective of financial managers is to maximize the wealth of the firm or the price of the firm's stock. A secondary objective is to maximize earnings per share.

Which of the following is not a function of finance manager?

Explanation: because the basic functions of an finance management is to finance,budget and market. forecasting requires from all the sources like production department, sales department and manufacturing department. therefore, forecasting is not a function of finance manager.


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