ACCA Applied Skills · Financial Management · The nature and purpose of financial management
Which of the following is generally regarded as the primary financial objective of a profit-seeking company in financial management theory?
The primary financial objective of a profit-seeking company is to maximise shareholder wealth, which comes from dividends and share price growth. Profit maximisation is inferior because it ignores the timing and risk of returns and can be distorted by accounting policies.
- AMaximising annual accounting profit
- BMaximising the market share of its products
- CMaximising the wealth of its shareholdersCorrect
- DMaximising the number of employees
Explanation
The standard primary financial objective is maximising shareholder wealth, reflected in dividends plus share price growth. Maximising annual profit is a distractor because profit ignores timing, risk and cash flows, and can be manipulated by accounting choices.
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