PROFIT MAXIMIZATION: A STRATEGIC TOOL FOR SURVIVAL OF BUSINESSES IN NIGERIA (A CASE STUDY OF DANGOTE CEMENT INDUSTRY)
CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND OF STUDY
The ultimate goal of every firm in business is profit i.e. (Profit Maximization) and cost minimization in order to maximize shareholder wealth. Many industries today are facing problems due to the expansion through increases sales and the introduction of new product. Some on the other hand are facing problem of contraction owing to the introduction of substitute material. It is vital that management should be in position to plan for these changing levels of activities.
Apart from the problem of contraction and expansion during economic depression, an enterprise may be faced with the alternative of closing down or selling it at a price below the total cost.
Hence profit planning and control becomes difficult as a result of product offered and the action of competitor. In order to solve the problem created by the above situation profit, planning, cost, and their behaviour at different separating level, one of the most important tools developed by accountants to assist management in meeting the challenges is cost volume profit analysis.
According to I.M Pandey the analytical technique used to study the behavior of profit in response to changes in volume, cost and price, is called “Cost volume profit analysis” It is a device used to determine the usefulness of the profit planning process of the firm.
The entire field of profit planning has become associated with the cost volume profit relationship in organization. In micro-economics course, profit maximization is frequently cited as the goal of the firm; Profit maximization stressed the efficient use of capital resources but it is not specific with respect to the time frame over which profit are to be measured; Profit maximization function largely as a theoretic goal with economist using it to prove how firms behave rationally to increase profit. Unfortunately, it ignores many real-world complexities that financial management firms must deal everyday with. Two major factors not considered by the profit maximization are Uncertainty and timing.
