What is Profit Maximization Goal? Write its weaknesses: BBS Second: Fundamentals of Financial Management

BBS Second:

Fundamentals of Financial Management

Answer in English and Nepali Medium


What is Profit Maximization Goal? Write its weaknesses.

  • Ans: At the beginning of the nineteenth century, the principle of maximizing profits was considered important, but today it is considered useless.
  • In other ways, the organization should produce quality goods or services to increase profits.
  • In a free economy, goods and services are always profitable.
  • Firms that sell good products and services raise the price of goods to generate more profit.
  • Due to the market competition of such service providers, the maximum profit reaches the stopping point. And this is the point of profit maximization.
  • The purpose of maximizing profits is the process by which the business manages its price and cost structure to achieve the highest possible profit.
  • The main objective of the organization is to increase profits.
  • The goal of maximizing profit is to conduct other activities with the objective of increasing profit at the center of the organization.
  • For this, the market value of the stock is increased.Only profitable projects are selected.
  • It is considered normal for an organization to make a reasonable level of profit in order to maintain its existence.

Its weaknesses are as follows:

Increasing profits may seem like a good idea but it is not suitable for modern ideas of entrepreneurship and doing business.

  • The purpose of maximizing profits is not clear.

  • The time value of the currency has not been taken into consideration.

  • It does not generally consider risk and return.

  • It focuses on special products to maximize profits that can create waste.

  • It is better to produce efficiently than to increase profit.Ignores risks.

  • The current business structure is completely different and this structure is not only built on the concept of profit maximization.

  • The company’s thinking has also changed over time.

Now, a skilled company is one that can take good care of its stakeholders without any scrutiny about the ethics of its work. The idea of ​​maximizing profits is not self-sufficient in nature and is not designed to target the market.

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