Question

1.What’s wrong (if anything) with saying the basic financial goal of a business is to “maximize profits?”

2. Explain and provide an example of how a company can generate lots of profits, but still go out of business because they don’t have any cash.           

3. In a typical corporation the finance function is divided into two divisions, or departments. What are they? What does each department do?

Answer 1

Answer 1) As per purpose of business in finance ,profit maximization is basic goal of business. Investors and owners invest in business to earn return as profit for longer run. The ability to maximize profits fulfills the needs of all associated in business like shareholders, the employees, suppliers , customers, society and even government. As earning of profit and maximization of profit is ultimate target as business cannot even sustain without profit earning.

Answer 2) Profits are very important factor of any business easily figure out from P/L account of business, but profits aren't as important as cash.There are possibility of no cash situation for company even after earning a huge profit . As reporting of profit depend on accounting concept of accrual and cash .

As company can claim income on invoice even before of without payment received , for example a client service invoice for $50,000 sent will be consider as sales in P/L account to find profit but the money isn't in the bank - no cash yet.

Similarly , may be many situation where business may not have cash even after high profit.

Answer 3)  

In general corporations are divided two broader areas for benefit of business purpose, stockholders benefits and managers. Stock holders elect the board of directors who select the managers.

The stockholders are looking for wealth maximization or shareholders wealth maximization. The managers are responsible for benefits of the corporation for profit maximizations and corporation sustainability.