So its too simplistic to say that maximizing future CFs is only objective Eg a

So its too simplistic to say that maximizing future

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So it’s too simplistic to say that maximizing future CFs is (only) objective. E.g.: a common goal is security, and the removal of uncertainty regarding the future may override the pure profit motive. Organizations may also pursue more specific objectives, such as producing high- quality products or being the market leader within a particular market segment. The view adopted in this book is that, broadly, firms seek to maximize future profits. There are three reasons for us to concentrate on this objective: 1. It is unlikely that any other objective is as widely applicable in measuring the ability of the organization to survive in the future. 2. It is unlikely that maximizing future profits can be realized in practice, but by establishing the principles necessary to achieve this objective you will learn how to increase profits. 3. It enables shareholders as a group in the bargaining coalition to know how much the pursuit of other goals is costing them by indicating the amount of cash distributed among the members of the coalition. 2. Search for alternative course of action . = Search for range of actions / strategies that enable objectives to be achieved. Involves the acquisition of information concerning future opportunities and environments; it is the most difficult and important stage of the decision-making process. Consider one or more of the following: 1. Developing new products for sale in existing markets; 2. Developing new products for new markets; 3. Developing new markets for existing products.
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3. Select appropriate courses of action . = Collecting data about different courses of action (potential growth rates, projected profits, market share likely to achieve). 4. Implementation of the decision . = Implement in terms of budget and long term planning process. Budget = Financial plan for implementing the decisions that management has made. The budgets for all of the various decisions a company takes are expressed in terms of cash inflows and outflows, and sales revenues and expenses. These budgets are initially prepared at the departmental/responsibility centre level (i.e. a unit or department within an organization where a manager is held responsible for performance) and merged together into a single unifying statement for the organization as a whole that specifies the organization’s expectations for future periods (= master budget). 5. Comparing actual and planned outcomes and responding to divergencies from plan. Control = the measurement, reporting and subsequent correction of performance in an attempt to ensure that the firm’s objectives and plans are achieved. Accountant insures performance reports to monitor the performance and presents this to managerial decision makers. Reports compare actual outcome with budgeted outcome.
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