Question

Explain the difference between maximizing profit and adding value using an example and explain why adding value is so critical to an organization.

Answer 1

Maximizing profits is related to acceptance of all such projects which will be ultimately leading to increase in the profits of the company and it is a short sighted approach which will not be accounting into long-term value generation of the company but it will rather Accounting in for short term profit maximization.

Adding value is often associated with value maximization of the company in the long run and it is often indicating that the sustainable development of the company and it is often indicating the long-term vision of the company so it is not a short sighted approach and it is a very wider perspective of value maximization.

profit maximisation will be not considering the ethical consideration while acceptance of project whereas value maximization will always considered the ethical aspect the for acceptance of a project.

value maximization will always be preferred by company who are looking for serving the society in the longer period of time whereas profit maximization is often preferred by the company who are looking for a very short term.

Example for maximization of profit will be that acceptance of unethical products which will be leading to maximization of projects whereas value maximization will be leading to increase in the expenditure on the society and providing them with employment benefits which will be later resulting into to higher market share which can generate value for the company in the long run.

value maximization will always be important for the longer period of time as it will provide the company with the benefit of core competitiveness and additional market share and business reputation along with fulfillment of Corporate Social responsibility that would lead to creation of value and increase of share price by premium valuation in the long run