objectives

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Department
Accounting & Financial Management
Course
AFM 123
Professor
Christine Dupont
Semester
Fall

Description
In much of economic theory, it is assumed that a business aims to maximise profits. In reality, most businesses which are run for “commercial gain” do have profit maximisation as an important objective – since the shareholders have taken a risk investing in the business and require a return (profit) to compensate them for their risk. There are, however, many other potential financial objectives of a business. The table below summarises three alternative models of business objectives that have attracted popular support: Sales Maximisation Model (Baumol) This model argues that businesses try to maximise sales or revenues rather than profits. There are several possible motives for such an objective: • Grow or sustain market share • Ensure survival • Discourage competitors (particularly new entrants to a market) • Build the prestige of the senior management – who like to be seen running a large rather than a particularly profitable business • Achieve bonuses – if these are based on revenues rather than profits Management Discretion Model (Williamson) In this model, Williamson argues that management act to further their own interests – in other words to achieve person
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