Process of ambiguity - profit maximisation criterion, Financial Management

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Process of Ambiguity - profit maximisation criterion

One practical difficulty with profit maximisation criterion for financial decision making is that term-profit is a vague and ambiguous concept. It has no precise connotation. It is amenable to various interpretations by various people. To illustrate, profit may be long term or short term; it can be total profit or rate of profit; it may be before-tax or before-tax or after-tax; it may be total assets or shareholders equity or return on total capital employed and so on. If profit maximisation is taken to be objectives, the question arises, which of these variable of profit must a firm try to maximise? Apparently, a loose expression like profit of operational criterion for financial management.

 


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