Profit maximisation

Profit is useful for assessing performance, but the objective is incomplete unless the period, accounting basis and resources used are clear. A business can increase total profit by investing more capital without earning an adequate return on that capital. Short-term targets can encourage delaying necessary expenditure or rejecting attractive projects with initial costs. Accounting profit also differs from cash and does not directly capture risk or the time value of money. These limitations explain why financial management distinguishes profit maximisation from shareholder wealth maximisation, while still using profit as part of assessment.