StudentShare solutions
Triangle menu

Business Finance - Essay Example

Not dowloaded yet

Extract of sample
Business Finance

The maximization act in general is the one being criticized as the managers tend to be carried away by the mere feeling to satisfice and not really come up with means of maximizing or optimizing according the theories of finance. This means that the mangers go for solutions which they regard as satisfactory yet they need to seek the best solutions that are possible respecting the existing constraints. Considering the structure of most modern firms, it is almost impossible to single out the mangers true motives. Modern firms are mostly organized to operate as a corporation where shareholders happen to be the legal owners of such firms and the managers have been given the mandate to act on behalf of their shareholders. This happens if the manager is out to merely satisfy the firm’s stockholders while at the same time pursing other goals of his or her own interests that are in no manner related to attempts to try and maximize the firm’s value. A good example is charitable organizations where it is hard to tell the firm’s support makes an integral part of its value maximization in long terms. In addition, considering a case where the size of the firm in continuously increasing yet the profits are not; this can be attributed to the decision of the manager to have his motivation as being to expand the size of the business through increasing its prestige association with other lager firms or an effort to make the firm more recognized on the market place. It becomes very hard to come up with definite answers to situations like the ones mentioned above resulting to some of the financial theorists to come up with theories on firm behavior. The theories have come up with different situation in relation to the managers and maximization of the ownership wealth. They include; A firm manager may primarily try to maximize the growth or size of the firm and not its current value, the firm’s manager may try to maximize their own welfare or utility and in other cases a firm being considered as a collection of different individuals who have divergent goals rather than one common goal (Williamson 2000, p. 73) As the financial theories regarding firm try to increase the understanding on how firms behave, they don’t necessarily provide the most desired solution especially when it comes to wealth maximization considering the dynamics in the structures of different firms. However, they serve as basis for better understanding and interpretation of different behaviors witnessed in firms. Financial theorists have argued that it is the intense market competition for services and goods that usually force the firm managers to make decisions regarding value and wealth maximization. If a firm fails to come up with the right decision regarding alternatives that are most efficient which imply the need to go for maximum costs for every output level, considering the commodity market price being produced by the firm, other firms may end up outcompeting the firm thus pushing it out of existence. Competition also impacts the firm operations through the capital market. In such as case, stockholders are mainly interested in their stocks returns as well as the prices of their stock which are determined by the value of the firm, that is the expected profits current value that has been discounted. This forces the managers to maximize the profits of the ...Show more

Summary

Date: Course of Learning: Business Finance Finance theorists suggest that the goal of the firm should be to maximize ownership wealth. Discuss the basis of this concept and its application to the real world The current trend in most firms to have their main goal being to maximize the ownership wealth has received much criticism especially from the economists…
Author : feestcleora
Business Finance essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Business Finance"
with a personal 20% discount.
Grab the best paper

Related Essays

Business finance
Anglo Platinum, a well controlled subsidiary Anglo American plc has platinum reserves on its ownership. It mines, procedures and purify a series of platinum group metals. The company has in its ownership 40% stake in company De Beers. It is a company which explores diamond, mining and selling company.
6 pages (1500 words) Essay
International Business Finance
Introducing a firm and/or its product to the overseas market is done through overseas expansion in which a firm extends its business and operations out of its domestic work boundary into newer regions of greater opportunities. There are several methods of overseas expansion including exporting, foreign direct investments, and resource allocations etc that provide firms with means to enter the international market.
4 pages (1000 words) Essay
Business finance-2
In the current investment world, people have different investment aims. One of the most renowned motives is earning income or returns on the investments value. However, economic research shows that using returns alone in selecting best investments option is not adequate.
20 pages (5000 words) Essay
Multinational Business Finance
Allow me to familiarise you with the basic finance policies and strategies that guide our company in managing these risks so we can bring down our costs of equity, debt, and capital. Actively managing financial risks allows us to continue doing what we do best - designing and selling great products - instead of just reacting to problems linked to events beyond our control.
8 pages (2000 words) Essay
Business Finance Essay
The payback period is computed as the follows: Other things being equal, the investment with a low payback period is chosen as it implies less risk for the company. As the investment is recouped in a shorter period of time, it also indicates that the investment is less likely to fail.
6 pages (1500 words) Essay
International Business Finance Essay
Forex rate is defined as the units of one currency that can be purchased in terms of another. The general standard for the later is considered the US Dollar (USD). The problem complicates further if the organization deals in various countries with various currencies.
6 pages (1500 words) Essay
Business Finance - Assessment
Sales growth for this is forecasted to be 14.109% using the geometric mean method. Since the increase in Assets was not large enough therefore no extra funding was required and hence no new debt was raised.
4 pages (1000 words) Essay
Business Finance
To be clear about the matter, it needs to be understood that the greatest of all means is the revenue that is again collected from the society. Now this revenue is a collective mechanism of
6 pages (1500 words) Essay
Managing business finance
The only difference between the two is that the types of the underlying loan or these two obligations are different. Collateralized Loan obligations (CLOs) are types of
7 pages (1750 words) Essay
Managing business finance
The higher the risk of investor purchase, the higher the returns although in the case of a default the lower risk-taker gets most money back. The CLO manager’s objective is
7 pages (1750 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation