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.