...suitable than maximizing its profit as a goal of the business, it is because maximizing profits relates to profits only, and it assumes away the problems such as uncertainty of returns and the timing of returns, while maximization of the market value of the owners’ equity has take into all the considerations of all the financial decisions, such as wealth for the long term; risk or uncertainty; the timing of returns; and the stockholders’ return. Maximization of profits is regarded as the most commonly cited goal, always concern with the operational plans, but it is not a suitable objective at all, because there are many alternatives inside this outlined goal, For example, does that mean a short term or long term maximization target? Or what kind of profit is the target focuses on? It is not a fully appropriate objective, partly because it does not specify the timing or duration of expected returns. Is the investment project that will produce $100,000 return 5 years from now more valuable than the project that will produce annual returns of $15,000 in each of the next 5 years? An answer to this question depends upon the time value of money to the firm and to investors at their interest. Another shortcoming of aiming at maximizing profit is that it does not consider the risk or uncertainty in the process of making profits. Some investment projects are more risky but the profit cannot reflect this situation. As a result, the prospective profit would be more uncertain if these...
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...2-1 CHAPTER 2 Healthcare Business Basics Concept of a business Legal forms of business For-profit versus not-for-profit ownership Organizational goals Financial goals Taxes 2-2 Concept of a Business A business is an entity that raises money in the capital markets, invests these funds in assets (land, buildings, equipment, inventories, and so on), uses these assets to create products or services, and sells these products or services to sustain itself. A pure charity is different. Why? 2-3 Legal Forms of Business There are four major categories of business organization (legal forms of business): Proprietorship (sole proprietorship) Partnership Corporation Hybrid forms How much does the organizational form influence the practice of healthcare finance? 2-4 Proprietorships and Partnerships Advantages: Ease of formation Subject to few regulations No corporate income taxes Disadvantages: Limited life Difficult to transfer ownership Unlimited liability Difficult to raise capital 2-5 Corporation Advantages: Unlimited life Easy transfer of ownership Limited liability Ease of raising capital Disadvantages: Cost of formation and reporting Double (or triple) taxation for investor-owned corporations 2-6 Hybrid Forms of Organization Limited partnership (LP) General partners have control Limited partners are liable only for their initial contribution Not commonly used by healthcare providers Limited...
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...Goal of the Firm In finance, the goal of the firm is always described as "maximization of shareholders' wealth". Profit Maximization - is always used as a goal of the firm in microeconomics. Focus on short term goal to be achieved within a year. It stresses on the efficient use of capital resources. In order to maximize profit, the financial manager will implement actions that would result in maximum profits without considering the consequence of his actions towards the company's future performance. Drawbacks of Profit Maximization - Profit maximization is a short-term concept. - Profit maximization does not consider the timing of returns. - Profit maximization ignores risk. Maximization of Shareholders' Wealth The goal is to maximize the shareholders' wealth for whom it is being operated. It being measured by the share price of the stock, which in turn is based on the timing of returns, the amount of the returns and the risk or uncertainty of the returns. It also means maximizing the total market value of the existing shareholders' common stock. All financial decisions will affect the achievement of this goal. Shareholders' wealth maximization can be achieved by considering the present and potential future earnings per share, timing of returns, dividend policy and other factors that affect the market price of the company's stock. What is Shareholder Wealth Maximization? When business managers try to maximize the wealth of their firm, they are actually trying to...
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...In today’s world, non-profit organizations can no longer rest on the idea or premise that the work they do is rewarding, or personally fulfilling. While the work that non-profits do is greatly needed, and at times greatly appreciated, it is greatly underfunded as well. In Philip Harvey and James Snyder’s article as well as Bill Gates article all authors clearly outline that in order for non-profit companies to be successful; they have to begin to re-align their organization’s goals, objectives with their financial statements. The question becomes how does a non- profit realign their goals, objectives and financial statements in such a way that they are still able to do their good work, but remain financially viable? Bill Gate’s answer is creative capitalism. Another answer, one that mirrors the idea of creative capitalism is the idea that organizations now more than ever must ensure that they are closely integrating their cause agendas into their business strategies instead of just writing a check. In each of these answers, organizations and corporations can find success. “Charities Need a Bottom Line Too” (Harvey & Snyder, 1987) and “Making Capitalism More Creative” (Gates, 2008) both help to clearly outline what charities, corporations and nonprofits could do differently to be financially more successful and stable. Each of these articles holds several things in common. One of which includes the same observations that Jack Welch endorses. These observations include that business...
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...Challenges of Managing Non-Profit Organizations There are different challenges a non-profit organization face, although I believe that these challenges are also faced by for profit organization at the same similar level. Trust is an issue that both non-profit and for profit organizations encounter at some point in their business, therefore transparency is very important. Transparency warrants organizations to provide clear statements of where their money goes, how it is utilized, and how it is making the organization accomplish their goals. These are not the only factors that are essential to make the stakeholders or anyone interested in the cause to trust the organization. For a non-profit organization trust is a key element to engage volunteers, donors and other business; without trust chances are that the organization might fail to achieve their mission by raising funds. Trust is acquire by performing the goals you have set for your mission and not deviating from it, at least not too far from achieving the organizations goals either for non-profit or for profit organization. It is also important to have a plan (Taylor-Hamm) in case there is a catastrophic event that might jeopardize your organization, it will help you foresee adverse situations and you will be better prepared in case your first plan fails. Performance challenges are faced in the same manner on both types of organizations non-profit and for profit organization. However they might be measured in a different...
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...Solutions to Chapter 1 Goals and Governance of the Corporation 1. What are the differences between a corporation and a sole proprietorship? A corporation is a distinct legal entity, separate from its owners (i.e., stockholders). The stockholders have limited liability for the debts and other obligations of the corporation. The liability of the individual stockholder is generally limited to the amount of the stockholder’s investment in the shares of the corporation. Creation of a corporation is a legal process that requires the preparation of articles of incorporation. On the other hand, a sole proprietorship is not distinct from the individual who operates the business. Therefore, the sole proprietor (i.e., the individual) directly owns the business assets, manages the business, and is personally responsible for the debts of the sole proprietorship. 2. What do we mean when we say that corporate income is subject o double taxation? Double taxation means that a corporation’s income is taxed first at the corporate tax rate, and then, when the income is distributed to shareholders as dividends, the income is taxed again at each shareholder’s personal tax rate. 3. Explain why each of the following may not be appropriate corporate goals. a. Increase market share b. Minimize costs c. Underprice any competitors d. Expand profits Increased market share can be an inappropriate goal if it requires reducing prices...
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...The Goal of the Firm Ereeka Ortega Managerial Economics September 8, 2015 Dr. McCoskey Abstract Since the Affordable Care Act insurance laws have changed drastically. The question today is do insurance companies make a profit off their customers? In this paper I will discuss Freidman’s goal of the firm. Milton Freidman felt as though the goal of the firm was to keep the shareholders at the front line of their decisions. When an insurance company decides what they are going to do to target their customers they make sure that they are going to have a profit so that the shareholders are happy. Another aspect of this paper is going to be on whether or not the government should have a role in the goal of the firm rights of those involved seem to be taken away. The Goal of the Firm The Friedman goal of the firm is that they take the shareholder into consideration when it comes to a profit. He believes that the sole purpose of the goal is to make sure that profits are maximized so that a portion of that profit can be provided to the shareholders, especially if there is a risk in the investment of the company. Not only does Friedman believe that the goal of the firm is to gain a profit for the shareholder but to not have any social responsibilities. In his book Capitalism and Freedom Friedman talks about totalitarianism, which is where the state has control over all aspects of the public and private...
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...Three to Five Year/Future Perspective of the Topic Managerial planning and goal setting is an important concept used by organizations of all types. Governments, unions, corporations, citizens, organizations, and small businesses all use some form of managerial planning in order to set goals for the future. Although planning and goal setting is developed during the present period, it is intended to be used for the future benefit of the organization. Managers incorporate a variety of plans in order to accomplish tasks and prepare for the future of their organization. Simply, future plans and goals may be created for projects, the organization as a whole, or to plan for upcoming events. While many plans are used for the present time, without a good future perspective, the organization will not be successful. The U.S. government has set up a council to map out the future of the world. Chapter seven of the text, Management by Richard L. Daft, pointed out the website of the National Intelligence Council (224). Looking as far ahead as 2020, the NIC provides several possible scenarios of how the world may look and evolve throughout the years. They provide policymakers with promising opportunities, as well as negative areas in the world’s development. This agency consults experts from all around the world in order to get an accurate global perspective. The NIC has already published several reports; two of the most recent were named “Global Trends 2010” and “Global Trends 2015...
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...Encyclopedia, 2007).” Developing Employees Developing employees in a manner that upholds and enhances performance, motivation, and satisfaction on the job is the responsibility of the organization. The selection process is a good way to start this by administering candidates for employment personality test to make sure the company, the team and the candidate are compatible. The company shall be held accountable to give new employees a clear expectation of what is required of she or he to perform her or his duty, supply an opportunity for employees to communicate openly with peers, managers, and leaders and explain the benefits and pay that comes with the job. Managers will confer with its subordinates on a regular basis to redefine and set goals and objectives as necessary. The many differences that employees bring to a company command that managers and leads maintain open communication with employees to uphold and enhance organizational behavior. Maintaining positive feedback, correction and guidance gives employees clearly defined expectations and a solid foundation. It is the duty of leaders and managers to...
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...72056_CH01I 3/13/02 11:02 AM Page 1 CHAPTER 1 The Importance of Return on Investment: ROI A fter reading this chapter, you will be able to • Understand how owners view profitability • Compare the profitability of two companies • Calculate a return on investment using information about profit and investment he owners of a company and the company’s creditors share a similar goal: to increase wealth. They are thus very concerned about profitability in all phases of operations. Creditors are specifically concerned that the company use its resources profitably so that it can pay interest and principal on its debt. Owners are concerned that the company be profitable so that stock values will increase. Company managers must show they can manage the owners’ investment and produce the profits that owners and creditors demand. Because top management must meet the profit expectations of company owners, it passes down to the lower levels of management those profitability goals, which are then spread throughout the company. All managers, therefore, are expected to meet profitability goals, which are often increased and tightened as each level of management seeks a margin of safety. T 1 72056_CH01I 3/13/02 11:02 AM Page 2 ESSENTIALS of Corporate Per formance Measurement TIPS & TECHNIQUES The Accounting Equation Here are two ways to view what accountants refer to as the accounting equation that relates assets and claims to assets by...
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...Q. Explain why profit maximization is not the best goal for company what is an appropriate goal and why? Some people believe that the manager’s main goal always should be to try to maximize profits. To do it, they should take only those actions that expected to increase revenues more than costs. It means maximizing in EPS (Earning Per Share). It seems a reasonable objective but as a goal suffers from several flaws: * First of all, figures for EPS are always historical so reflect past performance rather than what is happening now or what will happen in the future. If you as a manager seek only to maximize profits in a limited period, you may ignore the timing of those profits. Large profits that pay off many years in the future may be less valuable than smaller profits received next year. * Second, Different accounting principles result differences in profit computing. It means when firms compute profits, they follow certain accounting principles which focus on accrued revenues and costs. A firm that is profitable according to accounting principles may spend more cash that it receives and an unprofitable firm may have larger cash inflows than outflows. There is a famous expression in finance saying:” you cannot pay your bills with earning, only with cash!!” In finance, we place more emphasis on cash than on profit or earning. * Finally, as a manager you have to include variability or risk. Focusing only on earning may ignore them. When comparing two investment opportunities...
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...organizations are for-profit, not-for-profit and governmental. The characteristics and services the organization provides determine the type of financial environment it is. This paper will describe each of the environments as well as discuss the policies, structure, and financial management of each. This paper will also attempt to explain why financial management is more difficult in healthcare organizations than in any other businesses. Similarities of Financial Environments While many differences exist among each financial environment, they are also similar in many ways as well. Each organization whether classified as for-profit, not-for-profit, or government has a mission and vision statement that defines the organization’s strategic plans. The mission and vision statement reminds the staff of the long-term goals and ensures they understood what is required to meet the healthcare demands of the public. Financial managers must understand the tax laws that are associated with each type of organization before any decisions regarding financing are made. For-profit (FP), not-for-profit (NP), and governmental environments have stakeholders who have a financial interest in the organization. Organizations depend on profits to invest in new equipment, supplies, and services. Differences between Environments Not-for-profit Financial Environment According to Gapenski (2008), 60 percent of all hospitals are classified as not-for-profit. An example of a not-for-profit facility is Scott...
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...that employees must avoid. PUNISHMENT Diagnostic controls systems: allow managers to ensure that important goals are being achieved efficiently and effectively. They eliminate the manager’s burden of constant monitoring. However, they can create pressures that can lead to control failures. Interactive control systems: enable top‐level managers to focus on strategic uncertainties, to learn about threats and opportunities as competitive conditions change, and to respond proactively. * Management control systems are set in place to help a company achieve their organizational strategy and goals. * Work of management: planning, directing and motivating, and controlling. * An organization consists of a group of people who work together to achieve certain common goals. * The CEO or senior management decides on the overall strategies that will enable the organization to meet its goals. * The management control process is the process by which managers at all levels ensure that the people they supervise implement the organization’s strategies. * System: a prescribed and usually repetitious way of carrying out an activity or a set of activities. Ch. 2 – Understanding Strategies * In a business, profitability is usually the most important goal. * A strategy describes the general direction in which an organization plans to move to attain its goals. A firm develops its strategies by matching its core competencies with industry opportunities. * Strategies...
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...flights” (University of Phoenix, Classic Airline Scenario, 2011) and has gained 32,000 employees with earnings of $8.7 billion in sales. September 11, 2001 was the start of the economic crisis for the airlines, along with the rising costs of operations. Classic Airlines has internal and external factors, which also contribute to the airline’s crisis. Addressing the crisis, Classic Airlines should consider using a ten-step basic problem-solving method as well as seek suggestions from the airlines internal and external resources. Define the Problem The first step in the method is defining Classic Airlines problem by determining the purpose of the project. Classic Airline’s shares are declining even though the airlines still earn a profit. A problem found is Classic Airline’s reward program offered to customers has declined, which could be because the customers are traveling less because of the economic times or the customers are traveling on other airlines. The decline could also be linked to the lack of customer satisfaction. Employee morale is another contributing factor to the airlines problems. The morale has decreased because of the September 11, 2001 attacks, referred to as 9/11. After 9/11 the airline was criticize for the lack of attention to security and the criticizing has been the major contributor to decrease in morale. The airlines also had to increase security to improve passenger safety, which raised the operating cost in labor. Along with security...
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...Article Review What Goals Do Business Leaders Pursue? A Study in Fifteen Countries By Geert Hofstede Geert Hofstede discusses in the article the causes of the failure of newly formed joint ventrues. He says that when the goals of the leaders are not clear to both parties the new venture is alost certain to get into trouble. He says that “such fundamental goal disparitires oftern go unrecognized or remain taboo.”1 It is for this very reason that joint ventures often fail. Hofstede’s five levels of cultural dimensions shed light on the differences of foreign investment. Semenov analyzed the differences in economic governance among 18 developed countries Western countries and proved direct links between systems of governance and Hofstede’s original four cultures value dimensions of Power Distance, Uncertainty Avoidance, Individualism and Masculinity. Kogut and Singh in the article have found ...
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