19. The goal of Profit Maximization does not provide an operationally useful criterion for measuring the
success of business operations." Explain the above statement in the context of the basic objectives
of financial management.
Answers
Answer:
Answer on question #38935, Math, Other
1. “The profit maximization is not an operationally feasible criterion” Do you agree? Illustrate
your views.
2. “The function of Financial Management is to review and control decisions to commit or
recommit funds to new or ongoing uses. Thus in addition to raising funds, financial
Management is directly concerned with production, marketing and other functions within an
enterprise whenever decisions are made about the acquisition or destruction of assets”.
Elucidate.
Explanation:
The main principle of the enterprise (company) is to maximize profit. For this reason,
the profit is the main indicator of the efficiency of production.
Profit performs two major functions:
1) characterizes the final financial results of the company, the amount of his cash
savings,
2) is the main source of financing the costs of production and social development of the
enterprise (income tax - a key element of state budget revenues).
With the development of market relations is an expansion of the traditional
understanding of the profit is reduced to the difference between revenues and costs. This
corresponded to "balance" the definition of profits. With the transition to the market, except
for the accounting and define "economic" profit. In Cost Accounting profit is part of the income
remaining after reimbursement of current expenses and interest on short-term bank loans.
Profit for the enterprise is the main source of replenishment of working capital, material
incentives, financing social, etc. As the most important category of market relations profit
performs the following functions:
- Describes the economic impact resulting from the activities of the enterprise;
- An essential element of financial resources of the enterprise;
- The source of income of the budgets of different levels.
In terms of commercial calculation profit enterprise is not only as the main outcome (a
key indicator evaluation criteria) financial and economic activity of the enterprise, but also the
source of its development, financial innovation and investment projects, other needs, including
material and as members of a labor staff and owners, and society as a whole. Therefore central
to its distribution system should be a combination of interests of business entities, and society
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Answer: The main principle of the enterprise (company) is to maximize profit. For this reason, the profit is the main indicator of the efficiency of production.
Profit performs two major functions:
1) characterizes the final financial results of the company, the amount of his cash
savings,
2) is the main source of financing the costs of production and social development of the enterprise (income tax - a key element of state budget revenues).
With the development of market relations is an expansion of the traditional
understanding of the profit is reduced to the difference between revenues and costs. This corresponded to "balance" the definition of profits. With the transition to the market, except for the accounting and define "economic" profit. In Cost Accounting profit is part of the income remaining after reimbursement of current expenses and interest on short-term bank loans.
Profit for the enterprise is the main source of replenishment of working capital, material incentives, financing social, etc. As the most important category of market relations profit performs the following functions:
- Describes the economic impact resulting from the activities of the enterprise;
- An essential element of financial resources of the enterprise;
- The source of income of the budgets of different levels.
In terms of commercial calculation profit enterprise is not only as the main outcome (a
key indicator evaluation criteria) financial and economic activity of the enterprise, but also the source of its development, financial innovation and investment projects, other needs, including material and as members of a labour staff and owners, and society as a whole. Therefore central to its distribution system should be a combination of interests of business entities, and society as whole and individual employees. Implementation of this requirement leads to the basic principles of its distribution: a primary financial commitment to the community as a whole (represented by the state), ensuring maximum profit at the expense of the needs of the increased production, the use of financial incentives to its employees, the direction for the development of non-productive sphere. Maximum profit is achieved in interaction of internal and external factors of the company. The main requirement of profit maximization is the profitability of each unit of output. The firm seeks to maximize the difference between the times total revenue and total costs. Production of each additional unit of output increases the volume of the amount of marginal costs, but also increase and total revenue - the amount of marginal revenue. Until marginal revenue is greater than marginal cost, the profit increases in general, to maximize its limit has not been reached and the firm can increase production. Once the marginal costs are higher than marginal revenue, total profit growth slows and increase production becomes unprofitable. Consequently, the profit margin reaches a maximum at this output, at which marginal revenue equals marginal cost.
As noted above the profit rather a criterion of evaluation of financial and economic
activity of the enterprise. Profit cannot form the basis of operational criterion. Feature arrived in the market is to invest in its production, which contributes to economic growth and enhance its enterprise competitiveness. In practice, planning and accounting of the following types of income:
1) Income from sale of goods (works, services);
2) Operating income;
3) Income from operations;
4) Profit for the period;
5) Taxable profit;
6) Profit subject to preferences;
7) Profit for the product;
8) Income distribution;
9) Normal profit.