ACCA Applied Skills · Financial Management · Financial objectives and relationship with corporate strategy
Which of the following is the most appropriate primary financial objective for a profit-making company listed on a stock exchange, according to financial management theory?
The primary financial objective is maximising shareholder wealth, measured by dividends plus share price growth. Accounting profit is a poorer objective because it ignores risk, the timing of cash flows and can be manipulated, whereas wealth maximisation reflects the value created for owners.
- AMaximisation of shareholder wealthCorrect
- BMaximisation of annual accounting profit
- CMaximisation of sales revenue
- DMinimisation of the number of borrowings
Explanation
The primary objective of a listed company is maximising shareholder wealth, being dividends plus capital growth over time. Maximising accounting profit ignores timing, risk and cash flows, so it is a weaker objective and can encourage short-termism.
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