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ACCA Strategic Professional · Advanced Financial Management · Financial strategy formulation

Which of the following is the most appropriate primary financial objective for the board of a listed multinational, as assumed in the AFM syllabus?

The most appropriate primary objective is maximising shareholder wealth, measured as dividends plus capital gains over time. Profit, EPS or revenue targets ignore risk, timing of cash flows and the cost of capital, so they can be achieved while destroying shareholder value.

  1. AMaximising annual accounting profit after tax
  2. BMaximising shareholder wealth, measured by dividends plus capital gains over timeCorrect
  3. CMaximising total revenue and market share
  4. DMaximising earnings per share in each reporting period

Explanation

AFM treats maximisation of shareholder wealth, being the total return of dividends plus share price growth, as the primary objective. Accounting profit and EPS can be manipulated, ignore risk and timing, and do not capture long-term value. Revenue growth may destroy value if returns are below the cost of capital.

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