An analysis of the possibility of profit maximisation in business

Risks may be internal or external which will affect the overall operation of the business concern.

An analysis of the possibility of profit maximisation in business

As against this, the more uncertain or fluctuating the expected benefits, the lower the quality of benefits. References Anthony, Robert B. Its main aim is to earn profit. In a business, profits prove efficient utilization and allocation of resources. So, the time value of money is completely ignored. The computation of cash inflows and cash outflows is precise. This objective is a universally accepted concept in the field of business. The Profit Maximization approach proposes that the prime objective of a business concern should be to maximize its profits.

They indirectly create assets for the organization. The losing importance of profit maximization is not baseless and it is not only because it ignores certain important areas such as risk, quality, and the time value of money but also because of the superiority of wealth maximization as an objective of the business or financial management.

The term 'profit' is used in two senses. However, the benefit they get is the good reputation, and therefore consumers may prefer its products. It is because different mindset will have a different perception of profit.

profit maximization example

It is not explicitly mentioned which profit to maximize as there are numerous types of profit in a business. Therefore, the more certain the expected return, the higher the quality of benefits.

It may be total profit or rate of profit. A business with sound profits is perceived as efficient both in terms of operation as well as investment.

This is due to the fact that an adequately profitable business has the capacity and is usually inclined to pay its obligations on time and hence creditworthy.

Between project A and B, project A may be more profitable however if it is substantially more riskier than project B may be preferable. Despite the above cited limitations, and also the availability of other technical alternative approaches, profit maximization criteria is still used for making decisions on a large scale particularly by small scale businesses, primarily due to its simplicity to understand and use and economy in terms of time and cost.

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Evaluate Whether Profit Maximisation Is Always the Most