Common Business Objectives: Growth, Profit Maximization, Shareholder Value, and Ethical Goals
- Jojo is the CEO of a company.
- What would Jojo's top priorities be?
- Would Jojo focus on increasing profits, expanding into new markets, or ensuring ethical practices?
These are the kinds of questions businesses face when setting objectives.
Profit and Profit Maximization
What Is Profit Maximization?
Definition
Profit maximization
Profit maximization is the process of achieving the highest possible difference between total revenue and total costs.
A business may set a goal to increase its profit margin by 15% over the next year.
Why Is Profit Maximization Important?
- Satisfying Shareholders: Higher profits often lead to larger dividends and increased shareholder value.
- Funding Growth: Profits can be reinvested into the business for expansion, research, and development.
- Measuring Success: Profitability is a key indicator of a business's financial health.
- Profit maximization doesn't always mean cutting costs.
- Sometimes, investing in quality or innovation can lead to higher long-term profits.
Growth
Definition
Growth
Growth refers to the expansion of a business in terms of sales, market share, profits, or operations over time.
Why Is Growth Important?
- Economies of Scale: Larger businesses can reduce costs per unit by buying in bulk or optimizing production.
- Market Dominance: Growth can help a business outpace competitors.
- Attracting Talent and Investment: A growing company is often more appealing to employees and investors.
- Don't assume growth is always positive.
- Rapid expansion without proper planning can lead to operational inefficiencies or financial strain.
Protecting Shareholder Value
Definition
Shareholder value
Shareholder value refers to the financial worth that a business delivers to its shareholders, typically measured through dividends, share price appreciation, and overall profitability.
How Do Businesses Protect Shareholder Value?
- Increasing Share Prices: Achieved through strong financial performance and strategic growth.
- Paying Dividends: Balancing short-term payouts with long-term reinvestment.
- Transparent Communication: Keeping shareholders informed about business strategies and performance.
