Methodology of Business Studies - Section 2, Part 5

Part V- Multiple Goals of business and Government Regulations
    Business firms have multiple goals or objectives depend upon its need to satisfy various classes of stakeholders. The stakeholders may be of shareholders, managers, employees, customers etc. Therefore the goals of an organisation may be multiple and conflicting.
The major goals are:
(a)Maximisation of profits
(b)Maximisations of sales
(c)Maximisation of market share
(d)Maximisation of services
(e)Maximisation of worker satisfaction
(f)Maximisation of firm’s social responsibility, etc.

Profit Maximisation and Wealth Maximisation
    Traditionally profit maximisation is considered as the main object of the firm. Profit maximisation is the maximising the rupee income of the business. Presently wealth maximisation is regarded as the better objective which refers to the maximisation of the market price of shares of the company. The modern theory of the firm postulates that the primary goal of the firm is to maximise the wealth or value of the firm.
Share holder Value Maximisation Model
The shareholder value maximisation or the shareholder wealth maximisation model assumes that the objective of the firm is to maximise the value of the firm as measured in the market place, i.e., maximise the market value of firm’s  share. The value can be defined as the present value of the expected future cash flows of the firm.
    Therefore the value of the firm is the value of its expected future earnings, discounted back to the present by an appropriate rate of interest. Since shareholders are the owners of the business, value of a firm represent the shareholder’s wealth.

  .
 . . Value of the firm = Net Present Value of expected future profits.

Government Regulations
    What ever be   the economic system, there must be some regulations and a legal framework to facilitate the smooth functioning of the system. The government has to consider the interests of all the stakeholders while framing such regulations. The government formed commercial laws or business laws to govern business and commercial transactions.
    Commercial law include Mercantile law, Law of Agency, Law of Indemnity and Guarantee, Negotiable Instruments Act, Partnership Act, Company law etc. There are certain acts like MRTP ACT 1969, FERA 1973 (replaced by FEMA 1999) etc to control and manage monopolies and foreign trade.