Analyze the rationality and existing defects of profit maximization as the financial management goal

1.Without effectively considering the risk issue, high profits often have to take too large risks, which may make financial personnel pursue maximum profits regardless of the size of the risk; 2.does not reflect the relationship between the profits generated and the capital invested, which is not conducive to the comparison between enterprises with different capital sizes or the same enterprise over different periods; 3.

The one-sided pursuit of profit maximization may lead to short-term behavior of enterprises, so that enterprises sacrifice future profitability in exchange for more profits in the current year.

(1) Profit maximization is the goal of enterprise financial management.

This view became all the rage with the rise of Western economics. Since profit represents the newly created wealth of the enterprise to a certain extent, the more profit there is, the closer it is to the company's goal. With the goal of maximizing profits, it can indeed motivate enterprises to improve economic efficiency in various ways.

However, there are also many unrealistic problems with the goal of maximizing profits. The main ones are: the time value of profits is not considered; The relationship between the profit obtained and the amount of capital invested is not considered; The size of the risk taken on the profits obtained is not taken into account.

In addition, the one-sided pursuit of profit maximization will lead to various short-term behaviors of enterprises, and at the same time, it will also lead to the possibility of decision-making errors due to the failure of enterprises to scientifically measure risk factors.

Disadvantages: 1. Economic maximization does not consider the time for profit realization and the time value of funds.

2. Profit maximization fails to effectively consider the issue of risk. This can lead finance professionals to pursue the most profits, regardless of the size of the risk.

3. Profit maximization is often a tendency for enterprises to make short-term financial decisions, that is, to focus on the best interests of the present and ignore the long-term development of the enterprise. It should be noted that the profit maximization as the goal of enterprise financial management is only a shallow understanding of economic benefits, and there is a certain one-sidedness, so modern financial management theory believes that profit maximization is not the optimal goal of financial management.

There are two core concepts of financial management: the time value of money, risk and reward. The content of financial management mainly includes two major areas: investment and financing.

Investment can be divided into long-term investment and short-term investment, and financing can also be divided into long-term financing and short-term financing, so that the content of financial management can be divided into four parts: long-term investment, short-term investment, long-term financing, and short-term financing.

Extended Materials. First, development prospects.

In today's increasingly competitive society, college students majoring in financial management are also faced with multiple choices. From the perspective of occupational distribution, enterprises are the main battlefield of financial management, and more and more enterprises will move towards enterprise management with financial control as the core, and the cultivation of financial management talents will also be valued by enterprises. The following are several directions for the career development prospects of financial management majors for reference:

1. Accounting talents.

This is the most conservative and appropriate one of the financial management majors. Practice the basic skills of professional knowledge, learn intermediate and senior financial management, cost accounting, etc.

2. Management accounting.

This is the future employment trend of financial management majors. Management accounting is a development trend, which is gradually replacing financial accounting, and in the future, there will be management accounting talents in the enterprise, which shows that it is very important to learn CMA well.

3. Financial planner.

Financial planner is a very sought-after profession, a very high-paying profession, most of the professionals engaged in financial planning are in the insurance, banking, ** and other financial industries, financial management graduates can also take this job as a career development goal.

Correct answers: a, b, c, d

Analysis: The disadvantages of the profit maximization goal are: Profit refers to the net profit after tax realized by the enterprise in a certain period of time, without considering the time value of funds; does not reflect the relationship between the profits created and the capital invested; Risk factors are not taken into account; The one-sided pursuit of profit maximization may lead to short-term behavior of enterprises.

The disadvantage of taking profit maximization as the goal of financial management is that it does not take into account the time of profit realization and the time value of capital.

The issue of risk is not taken into account; It does not reflect the profits created and the capital invested.

the relationship between the relationship; It may lead to a tendency for short-term financial decision-making.

Financial management objectives, also known as financial objectives, refer to the fundamental purpose of financial activities to be achieved by enterprises, which determine the basic direction of enterprise financial management. The goal of financial management is the starting point and end point of all financial activities, and it is the basic standard for evaluating whether the financial management activities of enterprises are reasonable. The financial management objective is also the financial concentration and summary of the business objectives of the enterprise, and is the starting point and destination of all financial management activities of the enterprise.

The formulation of financial management objectives is the premise of the success of modern enterprise financial management, and only with clear and reasonable financial management objectives, financial management work has a clear direction. Therefore, enterprises should be based on their own actual conditions and market economic system.

For the requirements of enterprise financial management, scientific and reasonable selection and determination of financial management objectives.

With the gradual improvement of the market economic system, the theory of financial management has been constantly enriched and developed. Among them, the goal of financial management is also constantly innovating. So far, there have been four representative views, namely the principle of profit maximization, the principle of shareholder wealth maximization, the principle of enterprise value maximization and the principle of sustainable and effective appreciation of enterprise capital.

Profit maximization in early Western capitalism.

From the perspective of pure economics, the goal of a company's behavior is to maximize profits. Recent economics has also added an ethical perspective. It is believed that in the long run, only enterprises with business reputation and social responsibility will maximize their profits. When the marginal cost.

Equal to the marginal return.

mc=mr), and the profit is maximized.

In economics, the assumption of corporate profit-maximizing behavior is calculated as follows. (assuming that the quantity produced can be sold completely).

Profit = Revenue Expense = Selling Price of Goods * Quantity Produced Expenses.

This is because the goal of profit maximization does not conform to the principle of value between the time and the value of money, and does not take into account the relationship between the acquisition of profits and the amount of capital invested.

The profit maximization goal believes that the profit represents the newly created wealth of the enterprise, and the more profit it has, the more the wealth of the enterprise increases, and the closer it is to the goal of the enterprise. However, the profit maximization goal has the following drawbacks:

1. There is no clear concept of profit in profit maximization, which provides space for enterprise management to manipulate profits.

2. It does not conform to the financial management principle of the time value of money, it does not consider the time when profits are obtained, and does not conform to the financial management concept of "time is value" of modern enterprises.

3. It does not conform to the financial management principle of risk-reward balance. It does not take into account the relationship between profits and the risks it bears, which increases the operational and financial risks of the enterprise.

4. The relationship between profit acquisition and the amount of capital invested is not considered. The profit is an absolute indicator, which cannot truly measure the advantages and disadvantages of the company's business performance, and is not conducive to the establishment of the company's competitive advantage in the same industry.

Therefore, maximizing profits should not be the goal of financial management.

Taking profit maximization as the goal of financial management, its advantages are mainly manifested in:

1. This goal takes into account the time value and risk value of funds, which is conducive to the overall arrangement of long-term and short-term planning, reasonable selection of investment plans, effective fund-raising, and reasonable formulation of dividend policies.

2. The goal reflects the requirements for the preservation and appreciation of corporate assets, in a sense, the more shareholder wealth, the greater the market value of the enterprise;

3. This goal is conducive to overcoming one-sidedness and short-term behavior in management;

4. This goal is conducive to the rational allocation of social resources. Social funds usually flow to enterprises or industries that maximize corporate value or shareholder wealth, which is conducive to maximizing social benefits.

There are also some shortcomings in the goal of maximizing enterprise value, and its shortcomings are mainly manifested in:

1. The profit here refers to the after-tax profit realized by the enterprise in a certain period of time, without considering the time value of funds; Thirdly, it does not reflect the relationship between the profits created and the invested capital, which is an absolute number and is not convenient for horizontal comparison; Without considering the risk factor, high profits often have to take too much risk;

2. The one-sided pursuit of profit maximization may lead to short-term behavior of enterprises, and it is inappropriate to take profit maximization as the goal of enterprise financial management.

Advantages: Enterprises must pay attention to economic accounting, strengthen management, improve technology, improve labor productivity, and reduce product costs.

Disadvantages: 1. The time value of funds is not considered. 2. Failure to effectively consider the risk issue. 3. It will be the enterprise that only cares about the greatest interests in front of the enterprise and ignores the long-term development of the enterprise.

The time to get paid is taken into account and measured using the principle of time value?

1. It often makes enterprises pursue short-term profits.

The benefits of adopting the goal of maximizing the rate of return on equity capital scientifically consider the relationship between risk and reward.

3. It is advantageous to overcome the short-term behavior of the enterprise in the pursuit of profits, creditors, operators and employees. The amount of profit is the difference between the operating income and operating expenses of an enterprise in a certain period.

2。Profit maximization for the investors of the enterprise, because not only the current profit will affect the value of the enterprise, the level of economic benefits of the enterprise can be better assessed, and the amount of profit not only reflects the contribution of the enterprise to the country, but also is closely related to the interest of the enterprise.

4。The advantages and disadvantages of the profit maximization goal do not explain the time when the profits of the enterprise occur, do not consider the time value of funds, and do not effectively reflect the risk problem, one-sidedly emphasize the increase in the amount of profits, and it is calculated according to the principle of income and expense ratio, so as to better meet the needs of investors.

The return on equity capital measured in the capital structure decision-making reflects the return on investment of the company's owner's equity, which has a strong comprehensiveness, and the profit in profit maximization is the profit realized in a certain period of time, which is easy to operate.

What are the advantages of the goal of maximizing corporate value?

1. Does it reflect the results of the comparison between input and output in daily business activities in the current period?

1. It is easy to decompose and implement, and most employees can understand it.

Disadvantages: It can objectively examine the appreciation of the equity capital of the enterprise, which reflects the level of economic efficiency of the enterprise to a certain extent. However, the goal of enterprise financial management is to maximize profits, and the amount of profits not only reflects the contribution of enterprises to the country, but also is closely related to the interests of enterprise employees.

Profit is a simple indicator in practical application:

1. Clear and easy to calculate. The amount of profit is intuitive, the index of the rate of return on equity capital is easy to understand, and the amount of profit in profit maximization is an absolute number, which does not reflect the relationship between the amount of profit obtained and the amount of capital invested.

2. It is possible to make the enterprise pursue short-term interests, and there are some drawbacks in practice to maximize profits as the goal of corporate financial management, and the impact of expected future profits on enterprise value plays a greater role.

4. It not only takes into account the interests of shareholders, so it cannot scientifically explain the level of economic benefits of the enterprise, and it is not convenient to be in different periods. First of all, the amount of profit in profit maximization is an absolute amount, which does not reflect the relationship between the amount of profit obtained and the amount of capital invested, which may lead to the blind pursuit of profit regardless of the size of the risk. At last.

The rate of return on equity capital is one of the most comprehensive economic indicators of enterprises.

2. Reflect the practical benefits of the equity capital of the enterprise, and also reflect the impact on the return rate of the enterprise due to the change of capital structure.

3. The owner's equity at the beginning of the year can be converted into the final value according to the time value of the funds, and compared between different enterprises. Secondly, it reflects the results of the comparison between input and output in the current business activities, and to a certain extent, reflects the level of economic benefits of the enterprise. Because, under the conditions of a market economy.

1) The time (time value) of profit realization is not taken into account

2) Failure to consider the risk (resulting in the pursuit of maximum profit regardless of the size of the risk) For example, if all the 1 million yuan earned by enterprise A is recovered, and all the accounts receivable of enterprise B are receivable.

Which business is better?

3) The relationship between profit and the amount of capital invested is not considered (the amount of capital invested is not considered when pursuing profits, and there is a lack of comparability).

For example, if the enterprise is all earning 1 million yuan, enterprise A is built with an investment of 1 million yuan, and enterprise B is built with an investment of 5 million yuan, which enterprise is better?

4) It does not reflect the profitability of Wuzhong in the future.

5) Short-term behavior that can easily lead to financial decisions (leading to a focus on achieving and ignoring long-term development).

6) There may be profit manipulation.

a.The time value of the money is not taken into account.

b.There is no consideration of value-at-risk reputation.

c.There is no search to reflect the relationship between the amount of profit and the amount of investment.

d.The operating performance of the business is not revealed.

e.It is easy to lead to the short-term behavior of the operator.

Correct Answer: The time value of money is not taken into account; Value at Risk is not taken into account; does not reflect the relationship between the amount of profit and the amount of investment; It is easy to lead to short-term behavior of the operator.