Page 7 - DBP5043

TO MAXIMIZE THE ORGANIZATION

PROFITS/BENEFITS:

 Some people believe that the firms objective is

always to maximize profit

 To achieve this goal, the financial manager would

take only those actions that were expected to

make major contribution to the firm’s overall

profits.

 For each alternative being considered, the financial

manager would select the one that is expected to

result in the highest monetary return.

 Earnings per share (EPS) commonly used to

measure profits, which represent the amount

earned during the period on behalf of each

outstanding share of common stock.

 Profit maximization is not a reasonable goal

because it ignores

(i) the timing of returns,

(ii) cash flows available to stockholder and

(iii) risk.