Organisational Objectives

ACCA F9 考試 Organisational Objectives

1. Corporate objectives

In practice, companies are likely to have a variety of different objectives which may include several of the followings:

profit targets;

market share targets;

share price growth;

local and environmental concerns;

contented workforce;

meeting short-term targets; and

long-term plans.

2. Maximisation of shareholder

In the theoretical terms, a single corporate objective is assumed and this is the maximization of shareholder wealth.

Shareholder wealth is the combination of dividend and share price growth, which together are referred to as total shareholder returns.

3. Profit maximization

Profit maximization is often used as a proxy for shareholder wealth maximization. Unfortunately, profit is not necessarily a reliable proxy:

The value of the firm’s equity is more closely connected with its cash generation than accrual-based accounting profits.

Management may become “myopic”, that is, aim to boost short-term profit at the expense of long-term growth.

Excessive pressure to maximize profits can lead to manipulation of data, and in extreme cases, fraudulent accounting.

4. Earnings-per-share growth

Earnings per ordinary share (EPS) is calculated as:

EPS = (Profit after tax – preference dividends) / Weighted average number of ordinary shares in issue

EPS growth is a key indicator used by the financial analysts who advise the institutional investors in listed firms. Analysts often publish quarterly forecasts for a firm’s EPS.