Excellent model essay on financial objectives 1 on the choice of financial objectives
[Abstract] Two oil spills occurred in Penglai 19-3 oilfield in Bohai Bay jointly developed by CNOOC and ConocoPhillips China Co., Ltd., a wholly-owned subsidiary of ConocoPhillips, USA, and corporate social responsibility accidents occurred frequently, which traced back to the values of the whole society. Then it extends from human values to the choice of corporate values and corporate financial goals. This paper expounds the importance of corporate social responsibility, analyzes the feasibility of stakeholder theory, and finally draws a conclusion that it is more appropriate to choose the maximization of enterprise value as the goal of financial management and balance the interests of stakeholders under the condition that the financial evaluation system in China is still not perfect at present.
[Keywords:] corporate values; Social responsibility; Financial objectives; Value maximization
1 the proposition of the problem
In recent years, corporate social responsibility accidents have occurred frequently, which has aroused great concern from the government and the public. These social responsibility accidents are mainly manifested in two aspects: one is environmental responsibility, the other is safety responsibility. 20 1 1 In June, two oil spill accidents occurred in Penglai 19-3 oilfield in Bohai Bay jointly developed by CNOOC and ConocoPhillips China Co., Ltd., a wholly-owned subsidiary of ConocoPhillips. ConocoPhillips did not respond positively to the environmental problems caused by the oil spill, nor did it compensate the affected fishermen in time. What it has done clearly shows a lack of social responsibility. However, many incidents, such as melamine crisis, were found in the infant milk powder of well-known domestic companies, which made the whole country stunned and once again caused doubts and concerns about the quality and safety of Chinese goods. In addition, many so-called green vegetables are cultivated by people through various drugs.
So what are the root causes of these environmental pollution and food pollution? This paper holds that this is a morbid change in the financial objectives of the whole society. It is precisely because everyone takes his short-term interests as the main goal that he ignores the concern and commitment to social responsibility. This is true for individual farmers and enterprises. It can be seen that the choice of corporate financial goals has a significant impact on its social responsibility. If an enterprise only takes the pursuit of profit maximization, shareholder wealth maximization and enterprise value maximization as its financial objectives, and blindly pursues its own interests and short-term interests while ignoring its social responsibilities, it will not be conducive to the sustainable development of the enterprise and will eventually lead to its demise.
2 related theory
The so-called financial goal refers to the goal that an enterprise expects to achieve in organizing financial activities and coordinating financial relations under a specific financial environment, which determines the basic direction of enterprise interest coordination. There are four representative views on financial objectives in theoretical circles: profit maximization, shareholder wealth maximization, enterprise value maximization and stakeholder value maximization.
Corporate social responsibility means that enterprises should not only create profits and bear legal responsibilities to shareholders, but also bear responsibilities to employees, consumers, communities and the environment.
In the short term, taking social responsibility will reduce the wealth of shareholders, while choosing to avoid social responsibility or even harm social interests can improve the performance of enterprises. But in the long run, enterprises will eventually be punished, regardless of social responsibility, polluting the environment and ignoring the interests of other stakeholders in society. On the contrary, enterprises can develop steadily and healthily only if they assume their due social responsibilities and give consideration to the interests of relevant parties.
3 stakeholder theory and its feasibility
According to the theory of social responsibility, the company is not only owned by shareholders, but a contractual consortium formed by different interest subjects through contracts, and these subjects have invested corresponding assets in the company, such as creditors and employees. At the same time, enterprises do not exist in isolation, but are closely related to society, environment and other aspects. Therefore, many studies believe that when a company makes a decision, the service object of its managers should shift from shareholders to a wider range of different stakeholders, that is, the goal of corporate financial management has become to maximize the value of stakeholders.
The proposal of maximizing the value of stakeholders provides theoretical support for enterprises to pursue maximum value while taking social responsibility. Once maximizing the value of stakeholders becomes the financial management goal of enterprises and is effectively implemented, enterprises and society will develop together and enter a virtuous circle of development. However, it is not feasible to maximize the value of stakeholders as the goal of enterprise financial management at present, mainly in the following two aspects.
First of all, maximizing the interests of stakeholders makes it impossible for enterprises to have a single goal. Maximizing the interests of stakeholders is different from maximizing profits and shareholders' wealth. There is only one ultimate target subject, and there are many service objects to maximize the interests of stakeholders. Moreover, the measurement principles of these subject values are different, which makes it difficult to measure the enterprise goals. Maximizing the interests of stakeholders is a complete description of enterprise goals. If it can be well applied, it will make the enterprise develop stably and healthily for a long time. However, this multi-objective has no substantive content, is difficult to measure, and has no clear statement, which will confuse the management of the company and even lead to business failure.
Secondly, maximizing the interests of stakeholders will confuse the financial management of the company. Maximizing profits, maximizing shareholders' wealth and maximizing enterprise value can make the investment and financing decisions in the company's operation scientific and clear, and it is easy to make decisions through analysis and calculation. However, taking the maximization of stakeholders' interests as the goal of financial management will complicate and diversify the aspects involved in decision-making consequences, and there are no clear analysis data in many aspects, so we can only make subjective judgments, which makes it difficult for enterprises to have unified financial decision-making standards, thus causing financial confusion.
Based on the above two shortcomings of maximizing the interests of stakeholders, if we rashly take maximizing the interests of stakeholders as the goal of enterprise financial management, it will lead to confusion in enterprise management and difficulties in financial decision-making, and eventually it will be difficult for enterprises to operate effectively until bankruptcy, which is contrary to the original intention of enterprises. Therefore, we must carefully choose the goal of financial management, and we cannot ignore the actual situation just because the financial goal of maximizing the interests of stakeholders is good.
4 conclusion
To sum up, although the maximization of stakeholders' interests can better reflect the social responsibility of enterprises to a certain extent, which is conducive to the long-term development of enterprises, it is difficult to provide accurate financial objectives for the company's operation by maximizing stakeholders' interests, which will lead to financial confusion and damage the interests of stakeholders. Therefore, at present, under the condition of imperfect financial measurement, it is unwise to take the maximization of stakeholders' value as the financial goal of the enterprise, but should take the maximization of enterprise value as the financial goal and the maximization of stakeholders' interests as the auxiliary assessment factor to make the enterprise develop healthily.
Main references
[1] Xu Yong. On the choice of financial management objectives of modern enterprises [J]. Accounting, 20 10(5).
[2] Luo Xin. Realistic choice of financial management objectives of modern enterprises [J]. Research on Finance and Accounting, 20 10( 10).
Excellent model essay on financial management objectives 2 on financial management objectives
Enterprise financial management goal is a basic theoretical problem of financial management, and the representative model in enterprise financial management goal is also a standard to evaluate whether enterprise financial management activities are reasonable and effective. At present, there are many financial management objectives of enterprises in China, among which profit maximization, shareholder wealth maximization, enterprise value maximization and interest maximization of stakeholders. It is of great theoretical and practical significance to establish reasonable financial management objectives.
Keywords management objectives; Theoretical analysis; Target selection
The goal of an enterprise is to create value. Generally speaking, the goal of enterprise financial management is to create value services for enterprises. In view of the fact that finance mainly manages the process of providing goods or services to enterprises from the value aspect, financial management can play an important role in the value creation of enterprises.
Representative model of enterprise financial management objectives
(A) the goal of maximizing profits
Profit maximization is based on the assumption that enterprise financial management aims at profit maximization.
There are three main reasons for taking profit maximization as the financial management goal: first, the purpose of human beings engaged in production and business activities is to create more surplus products. Under the condition of market economy, the quantity of surplus products can be measured by profit; Second, in a freely competitive capital market, the right to use capital ultimately belongs to the most profitable enterprises; Third, only when every enterprise maximizes profits can the wealth of the whole society be maximized, thus bringing about social progress and development.
1. Main advantages of profit maximization goal
In order to maximize profits, enterprises must attach importance to economic accounting, strengthen management, improve technology, improve labor productivity and reduce product costs. These measures are conducive to the rational allocation of enterprise resources and the improvement of the overall economic benefits of enterprises.
2. The defect of taking profit maximization as the financial management goal.
(1) The time of profit realization and the time value of funds are not considered. For example, the actual value of this year's profit1100,000 yuan is different from the actual value of the same amount after 10, and the time value will increase during 10, which will change with the change of discount rate.
(2) Do not consider risks. Different industries have different risks, and the same profit value has different meanings in different industries. For example, high-tech enterprises with relatively high risks and manufacturing enterprises with relatively low risks cannot be simply compared.
(3) It does not reflect the relationship between the created profits and the invested capital.
(4) It may lead to the short-term financial decision-making tendency of enterprises and affect the long-term development of enterprises. Because profit targets are usually calculated on an annual basis, corporate decisions are often made to serve the completion or realization of annual targets.
(B) the goal of maximizing shareholders' wealth
Maximizing shareholder wealth means that the goal of enterprise financial management is to maximize shareholder wealth. In listed companies, the wealth of shareholders is determined by the number of shares they own and the stock market price. When the number of stocks is fixed, the stock price reaches the highest and the wealth of shareholders reaches the maximum.
1. Compared with profit maximization, the main advantages of shareholder wealth maximization
(1) Consider risk factors, because stock prices are usually more sensitive to risk.
(2) The short-term behavior of enterprises can be avoided to a certain extent, because not only the current profits will affect the stock price, but also its future profits will have an important impact on the stock price.
(3) For listed companies, the goal of maximizing shareholders' wealth is easy to quantify, which is convenient for assessment, reward and punishment.
2. Maximizing shareholders' wealth as the financial management goal also has the following shortcomings.
(1) is usually only applicable to listed companies, and it is difficult for non-listed companies to apply it, because it is impossible for non-listed companies to get the company's share price as accurately as listed companies at any time.
(2) The stock price is influenced by many factors, especially the external factors of enterprises, some of which may be abnormal. The stock price can not fully and accurately reflect the financial management of enterprises. For example, some listed companies are on the verge of bankruptcy, but their stock market prices may still rise due to some opportunities.
(3) It emphasizes the interests of shareholders more than other stakeholders.
(C) the goal of maximizing enterprise value
The goal of maximizing enterprise value refers to the goal of maximizing enterprise value in enterprise financial management.
Enterprise value can be understood as the market value of enterprise owners' equity, or the present value of expected future cash flow that an enterprise can create. It can reflect the potential or expected profitability and growth ability of enterprises. The concept of future cash flow includes time value and risk value of funds. Because the forecast of future cash flow contains uncertainty and risk factors, and the present value of cash flow is calculated by discounting cash flow according to the time value of funds.
1. Advantages of maximizing enterprise value as a financial management goal
(1) This objective takes into account both the time value and the risk value of funds, and is conducive to making overall arrangements for long-term and short-term planning, rationally selecting investment plans, effectively raising funds, and rationally formulating dividend policy.
(2) This goal reflects the requirements of maintaining and increasing the value of enterprise assets.
(3) This goal puts the long-term stable development and sustainable profit of the enterprise in the first place, effectively avoiding the short-term behavior of the enterprise.
(4) Replacing price with value overcomes the interference of too many external market factors and helps to overcome the one-sidedness in management.
(5) This goal is conducive to the rational allocation of social resources. Social funds usually flow to enterprises or industries that maximize enterprise value or shareholder wealth, which is conducive to maximizing social benefits.
2. Maximize the enterprise value as the financial management goal.
(1) The value of an enterprise is too theoretical to operate. Although for listed companies, the change of stock price reveals the change of enterprise value to a certain extent, the stock price is the result of many factors, especially in the case of inefficient capital market, which is difficult to reflect the value of enterprises.
(2) For non-listed companies, only a special evaluation can determine their value. However, due to the influence of evaluation standards and methods, this evaluation is not easy to be objective and accurate, which also leads to the difficulty in determining the enterprise value.
The goal of maximizing the interests of stakeholders
Modern enterprises are the sum total of multilateral contractual relations. As the owner of an enterprise, shareholders bear the greatest power, obligation, risk and reward in the enterprise, and their status is of course the highest, but creditors, employees, customers, suppliers and the government also bear considerable risks because of the enterprise.
When determining the financial management objectives of enterprises, we should not ignore the interests of these related interest groups, otherwise ignoring the interests of any party may bring harm to enterprises, not only failing to maximize the value of enterprises, but even causing fatal harm to enterprises. Therefore, the basic idea of maximizing the interests of stakeholders is to ensure the long-term stable development of enterprises, emphasizing the satisfaction of the interests of various interest groups headed by shareholders in the value-added of enterprises.
Second, the analysis and choice of enterprise financial management target theory
All the above viewpoints have their scientific and reasonable aspects, but the shortcomings in the actual business activities of enterprises are obvious. First of all, maximize profits? It is the goal pursued by enterprises and financial management. But? Maximize profits? In the long-term practice, this goal exposes its shortcomings, such as not considering the time value, risk value and the relationship between input and output of funds, which may lead to the short-term behavior of enterprise financial decision-making.
Secondly, the maximization of shareholders' wealth is not in line with China's national conditions. The advantage of maximizing shareholder wealth is that the goal is easy to quantify and evaluate. However, the obvious defect of maximizing shareholders' wealth is that the stock price is influenced by many factors, not all of which can be controlled by the company, and it is unreasonable to introduce uncontrollable factors into financial management objectives.
Finally, the optimization of capital allocation is too abstract. This financial management goal is put forward under the new economic conditions. Therefore, the concept of capital allocation optimization itself is unclear and too abstract to be applied to the specific operation of enterprises.
Third, the coordination of financial management objectives
(A) the contradiction and coordination between the owner and the operator
The main contradiction between the operator and the owner is that the operator hopes to increase the enjoyment cost while improving the enterprise value and shareholder wealth; Owners or shareholders hope that operators can bring higher enterprise value or shareholder wealth with less enjoyment cost.
In order to coordinate this contradiction, measures such as dismissal, acceptance and encouragement can usually be taken.
Dismissal is a way to restrain operators through owners. If the owner supervises the operator and the operator fails to maximize the enterprise value, the operator shall be dismissed. To this end, operators will strive to achieve financial management goals for fear of being dismissed.
Acceptance is a way to restrain operators through the market. (Continued from page 108) (Continued from page 106) If the operator makes mistakes in business decision-making and fails to take all effective measures to improve the enterprise value, the company may be forcibly taken over or merged by other companies, and the corresponding operator will be dismissed. Therefore, in order to avoid this acceptance, operators must take all measures to raise the stock market price.
Incentive refers to linking the remuneration of operators with their performance, so that operators can consciously take measures to maximize the value of enterprises.
(B) contradictions and coordination between owners and creditors
The contradiction between owners and creditors is mainly manifested in:
1. Owners can require operators to invest in projects with higher risks than those agreed by creditors without the consent of creditors, thus increasing the risk of debt.
2. Without the consent of the existing creditors, the owners or shareholders require the operators to issue new bonds or borrow new debts, which reduces the value of the old bonds or debts.
In order to coordinate the above contradictions between owners and creditors, the usual ways are: restricting borrowing, recovering borrowing or stopping borrowing.
Restricting loan refers to adding some restrictive clauses in the loan contract, such as specifying the purpose of loan, loan guarantee clauses and loan credit conditions.
Recovering the loan or stopping the loan means that when the creditor finds that the company has the intention to erode the value of its creditor's rights, he only takes debt collection and does not give the company more loans, thus protecting his rights and interests.
Fourth, the choice of financial objectives of enterprises in China
The research on financial management objectives has always been one of the focuses of foreign financial scholars. In recent years, Chinese financial scholars are also trying to find financial management objectives that can meet the inherent requirements of financial activities, connect with national financial management objectives, and meet the economic interests of all economic parties in enterprises, so as to realize the financial management objectives of Chinese enterprises.
In China, the public ownership economy is dominant, and state-owned enterprises, as a part of the economy owned by the whole people, aim to increase the wealth of the whole society. Not only economic benefits, but also social benefits; While developing the enterprise itself, consider the impact on social stability and development; Sometimes even for the sake of national interests, we have to sacrifice some corporate interests. Moreover, China's securities market is in its infancy, and it is difficult to find a suitable standard to judge? Shareholders' equity? . Release? Maximize shareholders' rights and interests? As a financial goal, it is neither reasonable nor realistic. It is more scientific to take the maximization of enterprise value as the financial management goal.
However, taking the maximization of enterprise value as the goal of enterprise financial management, how to measure it becomes a problem. To this end, there are several popular sayings, among which? Discounted value of future enterprise value awards? And then what? Asset appraisal value? Representativeness, both methods are scientific, but their concepts are based on a narrow understanding of enterprise value. Enterprises are social and society is made up of different people. The value of an enterprise is not only reflected in its value-added function, but also in its contribution to society and the fundamental interests of the overwhelming majority of the people. Therefore, the formulation of enterprise financial objectives should not only conform to the objective laws of enterprise financial activities, but also fully consider the actual situation of enterprise financial management to make it practical and operable. Then, the measurement index of enterprise value maximization should take the interests of stakeholders as the starting point.
Around the 1960s, the stakeholder theory gradually developed in the United States, Britain and other countries that have long pursued the corporate governance model of external control. The main difference from the traditional shareholder-led enterprise theory is that the development of any company can not be separated from the input or participation of various stakeholders, such as shareholders, governments, creditors, employees, consumers, suppliers and even community residents. Enterprises should not only serve the interests of shareholders, but also protect the interests of other stakeholders.
The above analysis shows that China's financial management goal is still? Maximize profits? Yes, it is most in line with the current economic situation in China. For enterprises in the market competition, the profit target can best reflect the nature of the enterprise. Pursuing profit is the inevitable choice to avoid elimination, survive and seek development, the fundamental purpose of enterprise existence and the behavior of enterprise? Motive force We can't deny the normal profit pursuit of enterprises by some negative effects of profit targets or other reasons. Of course, as analyzed above, Maximize profits? It doesn't have to cover all enterprises, covering the pursuit of goals in various periods. It is also an objective necessity to adjust the financial objectives in a timely manner according to the reality and development changes in different periods and to maintain the diversification and hierarchy of financial objectives.
In addition, it should be pointed out that enterprises should correctly handle the relationship between improving economic benefits and fulfilling social responsibilities. Enterprises must fulfill their social responsibilities in the process of pursuing their own economic benefits. We should not pursue the profits of enterprises by improper means, we should safeguard the interests of the public, and we should not seek the interests of enterprises at the expense of destroying resources and polluting the environment. In addition, enterprises undertake irregular social obligations and invest in social welfare undertakings. Enterprise management should strengthen enterprise management and promote the realization of specific objectives of financial management.
References:
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[3] Yang Chao, his golden day. On the financial objectives of enterprises under the new economy. Accounting monthly.
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