Powered by Leeds Metropolitan University

The new tutor2u website is now in Beta with all-new revision materials for you.

Visit the new tutor2u website here


Business Objectives - Alternatives to Profit Maximisation

Author: Jim Riley  Last updated: Sunday 23 September, 2012


In much of economic theory, it is assumed that a business aims to maximise profits.

In reality, most businesses which are run for “commercial gain” do have profit maximisation as an important objective – since the shareholders have taken a risk investing in the business and require a return (profit) to compensate them for their risk.

There are, however, many other potential financial objectives of a business. The table below summarises three alternative models of business objectives that have attracted popular support:

Sales Maximisation Model (Baumol)

This model argues that businesses try to maximise sales or revenues rather than profits. There are several possible motives for such an objective:

• Grow or sustain market share
• Ensure survival
• Discourage competitors (particularly new entrants to a market)
• Build the prestige of the senior management – who like to be seen running a large rather than a particularly profitable business
• Achieve bonuses – if these are based on revenues rather than profits

Management Discretion Model (Williamson)

In this model, Williamson argues that management act to further their own interests – in other words to achieve personal utility rather than to meet the interests of outside investors. Businesses run with this kind of objectives tend to deliver high levels of remuneration to management rather than the highest possible profits.

Consensus Model (Cyert & March)

The consensus model presents a slightly more complicated model of business objectives. In this case, it is argued that a business is an organisational coalition of shareholders, managers, employees and customers – each with different objectives. Management therefore try to reach a consensus with these different groups – each of which must settle for less than they would otherwise want. Shareholders, therefore have to settle for profits that are less than the theoretical maximum, perhaps to ensure that employees do better.

Wealth Maximisation Model

The theory of corporate finance suggests an alternative financial objective to profit maximisation that can provide a day-to-day focus for management. This theory assumes that management’s main job is to maximise the value or wealth of the business. Within this context, management seek to ensure that investments made by the business earn a return that is satisfactory to shareholders.


Other Business Study Resources You Might Like on tutor2u

Revision quizzes for business students

Starting a Business

Sources of Finance for a Startup
Cash Flow Forecasting for a Startup
Creating & Protecting Business Ideas
Startups and Understanding the Market
Market Research for a Startup
Locating the Startup Business
Choosing a Legal Structure for a Startup
Employing People in a Startup
Generating and Protecting a Business Idea
Using Breakeven in Decision-Making


Breakeven Basics
Costs, Revenues and Profits
Business Costs
Using Budgets
Using Breakeven in Decision-Making
Investment Appraisal Basics
Financial Strategies
Measuring and Improving Profit
Improving Cash Flow
Working Capital
Balance Sheet
Income Statement
Financial Efficiency Ratios
Profitability Ratios and ROCE
Liquidity Ratios


Products & Brands
Place (Distribution)
Price Elasticity of Demand

Business Organisation

Basics of Business Growth
Business Activities
Legal Structure Basics
Sole Traders and Partnerships
Limited Companies
Generating and Protecting a Business Idea
Organisational Structures


Working in Teams
Communication Basics
Communication Methods
Workforce Planning
Recruitment, Selection & Training
Employee Motivation
Organisational Structures


Operational Objectives
Critical Path Analysis
Scale and Resource Mix
Lean Production
Capacity Management
Customer Service Basics
Managing Quality
Operational Decision-making
Using Technology in Operations
Working with Suppliers

Economic Environment

Economic Sectors
Government Spending & Taxation
Interest Rates & Monetary Policy

Business Strategy

Leadership styles
Business Culture
Change Management

Add your comments and share this study note:

blog comments powered by Disqus


Search tutor2u

Order by 

Related study notes

Introduction to Accounting
Users of Accounts
Accounting Concepts and Conventions
Stakeholder Theory
Characteristics of Accounting Information
Alternatives to Profit Maximisation
Maximising the Value of a Business
Non-financial Objectives of a Business
Comparison of Financial and Management Accounting

Financial objectives - intro
Financial objectives - key measures
Introduction to Business Planning
Introduction to Budgets
Purpose and Role of Budgets
Incremental Budgeting
Zero-based Budgeting
Variance analysis
Budgeting limitations

Introduction to Business Organisation
Forming a Company
Advantages of Incorporation

Introduction to Financial Management
Introduction to Working Capital
Working Capital Needs of Different Businesses
Working Capital Cycle

Managing Business Cash Flows - An Introduction
Introduction to Raising Business Finance
Sources of Finance for SMEs
Overdraft Financing
Business Angels
Introduction to Venture Capital
Sources of Equity Finance
Rights Issues
New Share Issues & Flotations
Intoduction to Leasing
Leasing - Advantages & Disadvantages

Introduction to Financial Accounting
Income Statement
Profit quality
Balance Sheet
Current assets
Current liabilities

Introduction to Ratio Analysis
Interpreting Financial Information
Accounts & financial performance
Asset turnover
Stock turnover
Debtor days
Creditor days
Liquidity ratios
Gearing ratio
Shareholder ratios
Limitations of ratios

Accounting for Fixed Assets - Introduction
Depreciation - Straightline Method
Depreciation - Reducing Balance Method

Stakeholders - intro
Stakeholder power
Stakeholder conflicts


Download the tutor2u revision app

Download for Android

Download for IOS



Tutor2u support for students
Teaching support and resources
Search for resources on tutor2u

Refine Search by Subject
A Level Economics
Business Studies
Geography Give It A Go!
History Law
IB Diploma Politics
Religious Studies Sociology

Order Search Results By

Follow tutor2u on Twitter

tutor2u Home Page | Online Store | About tutor2u | Copyright Info | Your Privacy | Terms of Use


Boston House | 214 High Street | Boston Spa | West Yorkshire | LS23 6AD | Tel +44 0844 800 0085 | Fax +44 01937 529236

Company Registration Number: 04489574 | VAT Reg No 816865400