Fin 419 – Assessing the Goal of Sports Products, Inc. Case
Assessing the Goal of Sports Products, Inc.
Fin/419
Use this as a guide only
Goals
Monitoring and establishing goals within a company can be a very challenging task to undertake. Most important is to ensure the stakeholders are considered while creating the goals of the company. While a conversation between Loren and Dale unfold some company concerns, they bring forth some important information to consider such as maximizing shareholder wealth, creating corporate governance, and form ethical policies.
Additionally, Management at Sports Products, Inc should pursue maximum prosperity, or increase assets as its overriding goal. Along with the goals, management should also focus on increasing their cash flow. “Cash flow and risk affect share price differently: Higher cash flow is generally associated with a higher share price. Higher risk tends to result in a lower share price because the stockholder must be compensated for the greater risk” (Gitman, 2009, p. 15).
Agency Problem
An agency problem exists when there is a conflict between the agent and principal, and Sports Products, Inc exemplifies a good example.
One of the financial managers goals should be to maximize the prosperity of the proprietor. Managers are given the authority from the owners for the decision-making process to manage the company effectively. However, the manager may have other personal objectives. “The objective is to give managers incentives to act in the best interests of the owners. In addition, the resulting compensation packages allow firms to compete for and hire the best managers available” (Gitman, 2009, p. 20).
Instead of calling pollutant control and spending their profits, they took an unethical approach and disposed contaminants in the nearby stream. This type of action reveals that the firms objective was to try to enhance the firms earnings. Unfortunately, the decision to take this risk, had a negative outcome and detrimental to the company’s financial output.
Business Ethics
“Business ethics are the standards of conduct or moral judgment that apply to persons engaged in commerce” (Gitman, 2009, p. 17). Dale Johnson, an employee of Sports Products, inc. illustrates his concern that legal action has taken place with state and federal environmental officials because of the unethical behavior of dumping pollutants in a nearby stream. Dale acknowledges that management had inhibitions to increase profits and improve administrative proceeds. It is unlawful to dump or discard into any source of water as it pollutes the environment and can have a long term effect on animals and humans. Sustaining expenses