Wealth maximization is the appropriate objective of an enterprise. When the firm maximizes the stockholder's wealth, the individual stockholder can use this wealth to maximize his individual utility. It means that by maximizing stockholder's wealth the firm is operating consistently towards maximizing stockholder's utility.
A stockholder's current wealth in the firm is the product of the number of shares owned, multiplied with the current stock price per share.
This objective helps in increasing the value of shares in the market. The share's market price serves as a performance index or report card of its progress. It also indicates how well management is doing on behalf of the shareholder.
However, the maximization of the market price of the shares should be in the long run. Every financial decision should be based on cost-benefit analysis. If the benefit is more than the cost, the decision will help in maximizing the wealth.
Implications of Wealth maximization. There is a rationale in applying wealth maximizing policy as an operating financial management policy. It serves the interests of suppliers of loaned capital, employees, management and society. Besides shareholders, there are short-term and long-term suppliers of funds who have financial interests in the concern. Short-term lenders are primarily interested in liquidity position so that they get their payments in time. The long-term lenders get a fixed rate of interest from the earnings and also have a priority over shareholders in return of their funds.
Wealth maximization objective not only serves shareholder's interests by increasing the value of holdings but ensures security to lenders also. The economic interest of society is served if various resources are put to economical and efficient use.
sowjanya
If the company is public listed (trades in the stock market) their aim is shareholder wealth maximization whereas for a privately owned firm a profit maximization objective is appropriate.
Both profit maximization and wealth maximization have the objective of increasing the net worth.
it is operating cost
Shareholder wealth (more commonly referred to as shareholder value) is talking about the value of the company generally expressed in the value of the stock. Profit maximization refers to how much dollar profit the company makes.
Because as the price of a commodity increases, the purchasing power of consumers reduces. Consumers will then shy away and only few people would be able to pay for the extra. Thus, increase in profit may not necessarily mean maximization of wealth.
Shareholder wealth maximization is considered to be a more appropriate goal for the firm than profit maximization
If the company is public listed (trades in the stock market) their aim is shareholder wealth maximization whereas for a privately owned firm a profit maximization objective is appropriate.
Not necessarily
Profit maximization increase the graph of outputs.
yes
Both profit maximization and wealth maximization have the objective of increasing the net worth.
Profit maximization is a narrow view which accounts for only the difference between sales and costs Wealth Maximization is broader and more philosophical in approach. Wealth maximisation includes not exhaustively culture , synergy, value, potential and wealth
it is operating cost
The objective of financial management is wealth maximization rather than profit maximization. Wealth maximization means the total value of the firm.
Shareholder wealth (more commonly referred to as shareholder value) is talking about the value of the company generally expressed in the value of the stock. Profit maximization refers to how much dollar profit the company makes.
Profit maximization is short term as compare to share holder's wealth maximization, Managers should focus on Share holder's wealth maximization because its what they are hired for. also there are sevseal reasons such as.... 1) the share holders wealth is be considered.. 2)profit maximization doesnt say which type of profit it should maximize-short term or long term 3)profit maximization ignores the social values but only aims at earning maximum profit. 4)wealth maximization also considers improving the goodwill of the organization
Profit maximization is also about increasing the EPS (earning per share) of the shareholders and to maximise the net present worth. Main objective of co is profit maximization EPS: net profit/ no of shares outstanding. Wealth maximization is anything having value. Anything which can be expressed in money value or economic value which is considered as wealth. Baisc objective of a co is wealth maximization. How to increase the wealth: By producing a quality product at a competitive rate. By giving product at reasonable price. Good after sales service. this all things leads to increase in co's wealth.