The objections are:-
Profit cannot be ascertained
well in advance to express the probability of return as future is
uncertain. It is not at possible to maximize what cannot be known.
executive or the decision maker may not have enough confidence in the
estimates of future returns so that he does not attempt future to
maximize. It is argued that firm's goal cannot be to maximize
profits but to attain a certain level or rate of profit holding
certain share of the market or certain level of sales. Firms should
try to 'satisfy' rather than to 'maximize'
There must be a balance between
expected return and
risk. The possibility of higher expected yields are associated with
greater risk to recognise such a balance and wealth Maximization is
brought in to the analysis. In such cases, higher capitalisation
rate involves. Such combination of expected returns with risk
variations and related capitalisation rate cannot be considered in
the concept of profit maximization.
goal of Maximization of profits is considered to be a narrow outlook.
Evidently when profit maximization becomes the basis of financial
decisions of the concern, it ignores the interests of the community
on the one hand and that of the government, workers and other
concerned persons in the enterprise on the other hand.
the above objections in view, most of the thinkers on the subject
have come to the conclusion that the aim of an enterprise should be
wealth Maximization and not the profit Maximization. Prof. Soloman
of Stanford University has handled the issued very logically. He
argues that it is useful to make a distinction between profit and
'profitability'. Maximization of profits with a vie to maximising the
wealth of shareholders is clearly an unreal motive. On the other
hand, profitability Maximization with a view to using resources to
yield economic values higher than the joint values of inputs required
is a useful goal. Thus the proper goal of financial management is