Should business maximize financial profits?

Should business maximize financial profits?
The finance department of every company must strive to increase profit for the company to the highest attainable level both in long term and short term. This department must also stretch the shareholder’s wealth to the highest value possible as the company’s performance is also affected by the market value of the shares (Thrun, 2003). The finance department must make proper use of the available finance as well make smart financial decisions. Economic theory has traditionally suggested profit maximization as the single most important reason for establishment of businesses in the short term (Shim & Siegel, 2008).
The theory advocates for firms to strive to get the most profit for sustenance reasons. In this regard, it is essential for firms to generate adequate profit for their long term survival in varying business conditions including effects resulting from competition. Profits motivate businesses to continue their operations as well as becoming more aggressive to attain the most profit possible. Firms favour profit maximization because the revenue generated thereof is used to further other business goals. Every business requires maximizing its management functions, growth and sales capacity and this is only possible where profit is maximized. Another reason is because it is used to ascertain the efficiency and feasibility of the business. Managers may use this criterion to measure the efficiency of the company. In other cases, profit maximization is used to predict about the trend and behaviour of the business. Profit maximization also improves the social status of all the people affected by the business either directly or indirectly. When businesses focus on making maximum profits, the revenue generated is used to pay for payments such as labour which in turn positively affect the economy and social aspects of the particular setting.
Firms that focus on maximum profitability usually do so at the expense of profitability in the long run. This is in contrast to wealth maximization which ensures more certainty in terms of future wealth, risks, predictability on returns timings as well as shareholder’s dividends. A profit maximization strategy may advocate for postponement of an investment say in infrastructure to make more profit in the short term and this may have adverse effects in the future (Shim & Siegel, 2008). In this case the company may be unable to sustain maximum profits; in the event that the infrastructure required to undertake operations may be inadequate or unavailable.
Another problem that may arise after adopting profit maximization is that the benefit accrued from a certain venture is considered valuable regardless of its time value . A company that is devoted to the profit maximization principle ignores the possibility that the profitable venture today may not be as profitable in the next five years. This strategy may cause the business to hit a business dead end ...