CA Inter P6 · Chapter 1 · Question 3 of 7
Which of the following is a recognised limitation of profit maximisation as the objective of a company?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The term 'profit' is vague, since it could mean profit before tax, after tax, total profit or earnings per share
Explanation
A key criticism of profit maximisation is that 'profit' is ambiguous: short-term or long-term, before or after tax, total or per share. It also ignores the timing of returns and the risk attached to them, so it does not take the time value of money into account at all. It has no built-in effect on dividends or on creditors.
More Scope and Objectives of Financial Management MCQs
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- Q7Under the modern approach to financial management, the finance manager's role is best described as:
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