Final answer:
The correct answer is option D) Profit is king.
Step-by-step explanation:
The principle that is NOT a principle of basic financial management is D) Profit is king. While profitability is critical for the sustainability of a business, it is not a principle of financial management in the same sense as the other options. Instead, financial management principles are more about processes and concepts that guide financial decision-making.
- A) Risk/return tradeoff: This principle explains that the potential return rises with an increase in risk. Investors and managers need to understand and balance the risks associated with financial decisions and the expected returns.
- B) Incremental cash flow counts: This principle emphasizes that the true measure of an investment's value is the incremental cash flow it generates, not just the generated profits on an accounting basis.
- C) Efficient capital markets: This principle is based on the assumption that financial markets are efficient in reflecting information about securities in their prices, which guides investment and financing decisions.
"Profit is king" is not a recognized principle in financial management theory, although it is a common business axiom indicating that ultimately a business must be profitable to survive.