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True or false; The only way to measure a business's effectiveness is in terms of how much profit it makes. Why?

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Solution Summary

The solution discusses if the only way to measure a business's effectiveness is in terms of how much profit it makes.

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False, the profit is only one of the criterion of judging the effectiveness of the business. Profit maximization should not be the decision criterion of the management. Instead it should be wealth maximization, which is based on the maximization of cash flows. Cash flows are more important to business as it leads to wealth maximization. The profit maximization has certain pitfalls as a criterion, which are as follows:
? It is Vague
? It Ignores the Timing of Returns
? It Ignores Risk

Moreover, in new business environment profit maximization is regarded as ...

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