Maximizing profit is synonymous with maximizing earnings per share". Do you agree?

Yes, absolutely agreed. Profit maximization and earning per shares are synonym due to a few factors. Profit maximization (PM) is the amount of revenue remaining after deducting all costs and expenses. On the other hand, earning per share (EPS) is the amount earned during the period on behalf of each outstanding share of common stock after divided the period's total earning available for the firm common stockholders with the number of share of common stock outstanding.

      Prior to above definition, the first synonym is both concept can be achieved in short-term which is less than one year by either increasing or decreasing the variables such as sales units or sales price. Assuming Zaim Co. intends to increase its profit in short-term, either by reducing its investment in R&D or by postponing major repairs. The reduction in R&D or postponement of major repairs may result in future decline in sales or profits. If Zaim Co. postponing the major repair, in effect it can increase the company's earning. At the same time, postponing the major repairs may result in future decline in sales and profits. Thus these concepts must be achieved within one year.

       Next, the second factor is it does not consider the timing of returns. In other words, it does not matter how quickly a firm earns a return from an investment in fixed assets. Because the firm can earn the return from the fund it receives, the sooner it receives money the sooner it can be invested to generates returns, so does the EPS will be distributed quickly, the higher the value of the money.. For instance, project A in year 1 give returns RM111 111 meanwhile project B in year 2 give RM111 111.   In our example, in spite of the fact that the total earning from those project are equal, project A provides much greater earnings per share in the first year. The sooner receive the money the lager the return in year 1 could be reinvested to provide greater future earnings.

      Lastly, PM and EPS also disregards risk- the chance that the actual result would differ from the expected results. Clearly, PM and EPS only focus on getting the higher profit and ignore the uncertainty degree of the project. In addition, these concepts ignore the cash flow because emphasized on the amount of profit. Indeed, increasing in profit does not mean increased in cash as profit calculation based on accrual basis. Plus, expenses include in PM calculation are non-cash items like depreciation and amortization of fixed assets.

      Given these points, I strongly agreed Maximizing Profit is synonym with maximizing earnings per share because both short-term concept, does not consider the timing of returns, not consider risk and does not consider cash flow.


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