Profit

Maximization
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▪ Finance is the lifeblood of a

What is business organization. It
Financial may also be defined as the
Management art and science of managing
money.
and its ▪ Management the act or art
Objective? of managing : the
conducting or supervising of
something.
 3

What is ▪ Financial management is

Financial the application of planning
and control functions to
Management the area of finance.
and its ▪ Financial managing is
Objective? providing and controlling
the flow of funds in an
organization
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▪ Solomon defined — It is
concerned with the
What is efficient use of an
important economic
Financial resource namely, capital
Management funds.
and its ▪ Howard and Upton :
Financial management “as
Objective? an application of general
managerial principles to
the area of financial
decision-making’’.
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▪ The most popular and

What is acceptable definition by
Financial Kuchal is — Financial
Management management deals with
procurement of funds and
and its their effective utilization in
Objective? the business.
 6

▪ Joshep & Massie defines,

What is Financial management “is
Financial the operational activity of a
Management business that is
responsible for obtaining
and its and effectively utilizing the
Objective? funds necessary for
efficient operations.
 7

▪ Weston & Brigham defines

What is the Financial management
Financial “is an area of financial
Management decision-making,
harmonizing individual
and its motives and enterprise
Objective? goals”.
 8

What is
Financial
1. Profit maximization
Management
and its 2. Wealth maximization
Objective?
Profit
Maximization
Profit earning capacity is
a measuring technique to
evaluate the efficiency of
the concerned business. It
is also called cashing per
share maximization.
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Profit maximization is the

traditional and narrow
approach, which aims at,
maximizing the profit of
the concern.
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Advantages of Profit Maximization

Economic Survival
Profit maximization theory is based on profits and profits are
a must for survival of any business.

Measurement Standard
Profits are the true measurement of the viability of a
business model. Without profits, the business losses its
primary objective and therefore has a direct risk to its
survival.
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Advantages of Profit Maximization

Social and Economic Welfare

The profit maximization objective indirectly caters to social
welfare. In a business, profits prove efficient utilization and
allocation of resources. Resource allocation and payments for
land, labor, capital, and organization takes care of social and
economic welfare.
 Profit maximization
occurs when marginal
cost is equal to marginal
revenue.

Marginal Cost =
Marginal Revenue
Marginal revenue is defined as the revenue
earned in producing one more unit of your item.

Marginal Revenue = Change in revenue / Change in

quantity

Marginal cost is defined as the cost that is

incurred in producing one more unit of your item.

Marginal Cost = Change in cost / Change in

quantity
Features of Profit Maximization
❖ Profit Maximization is also known as
cash per share maximization. It helps in
achieving the objects to maximize the
business operation for profit
maximization.
❖ Ultimate aim of the business concern
is earning profit, hence, it considers all
the possible ways to increase the
profitability of the concern.
Features of Profit Maximization
❖ Profit earning capacity is kind of a
parameter for measuring the
efficiency of a particular business.
Thus, it shows the entire position of
business along with the measures to
improve and increase profitability.
❖ Profit Maximization is an objective
that helps in reducing risk.
 Drawbacks of Profit Maximization
❖ It is vague: In this objective, profit is not
defined precisely or correctly. It creates some
unnecessary opinion regarding earning habits
of the business concern
❖ It ignores the time value of money: PM does not
consider the time value of money or the net
present value of the cash inflow. It leads
certain differences between the actual cash
inflow and net present cash flow during a
particular period
 Drawbacks of Profit Maximization

❖ It ignores risk: PM does not consider risk of the

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

❖ What is Profit Maximization? The Beginners Guide | Techfunnel

❖ Financial Management for Profit Maximization - Brief Discussion

(enterslice.com)

❖ Profit Maximization (efinancemanagement.com)

❖ Profit Maximisation - Economics Help

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That’s all,
thank you for
listening.
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