ansz019 ‘Wealth maximization and Prof maximization @ comparative sty AboutUs / Terms of Service / Disclaimer / Privacy Policy The Fact Factor Law Social Sciences Management Arles —Life Skis. «QQ PROFIT AND WEALTH MAXIMIZATI ON Home / Profit and Wealth Maximization PROFIT AND WEALTH Recent Posts MAXIMIZATION “yeotentandoinae MAR 10,2019 / SHRUTIRAJE@2019 > Industrial Uses of Microbes FINANCIAL MANAGEMENT > Household Uses of Microbes + Financial management is concemed with procurement and use of funds. The > Sheep, Goat, and Pig main objective of Financial managements to ensure the maximization of the Farming economic welfare of ts shareholders. The maximization of economic welfare > Fisheries and Pisciculture means maximization of wealth ofits shareholders, Shareholder’s wealth maximization is reflected in the market value ofthe firm's shares. Profit Maximization: + Profit maximization is the objective of any economic activily. The performance and efficiency of a fir are evaluated in terms of profitability. Every business has to ear profit to cover its costs and provide funds for future growth. Without profit, no business can survive. Profit provides a cushion for any random risk arising at any time. Points in Favour of Profit maximization: META «+ tis a barometer of he performance and efficiency of a firm. + covers the cost of running a business > Login + provides a fund for future growth > Enties RSS + Without profit,a business cannot survive. ips thetactactr comifactshmaragemertfirancial managemerthveath-masimizaion53a/ 1sansz019 ‘Wealth maximization and Prof maximization @ comparative sty + Itprovides support in emergencies. > Comments RSS > WordP' Criticism on Profit Maximization: ress.org ‘+ The concept of profit lacks clarity. proftis neither defined precisely nor correctly. ‘What does profit mean? Is itprofit after tax or before tax? Is it operating profit or ARCHIVES net profit available to shareholders? Is it long-term profit or a short-term profit? Differences in interpretation of the concept of profit thus expose the weakness of > August2019 profit maximization + Profit maximization is the traditional and narrow approach, which aims at maximizing the profit ofthe firm. > June 2019 + Due to the sole goal of profit maximization, there may be the exploitation of > July 2019 > May 2019 labours and consumers. It may lead to immoral marketing and killing of the competition > April 2019 + Profit maximization objective ignores the time value of money and does not > March 2019 consider the magnitude and timing of earnings. Ittreats all eamings as equal when they occurin different periods. itdoes not differentiate between the profits of the current year with the profits to be earned in later years. Similarly, it does not the difference for the firm between the cash received today and same cash received after one year. CATEGORIES + Itdoes not take into consideration the risk of the prospective eamings steam. It {ails to consider the fluctuations in profits earned from year to year. Fluctuations may be attributed to the business risk, environmental risk or risky projects of the Select Category firm. Risks may be intemal or external which will affect the overall operation of the firm, ‘+ The effect of dividend policy on the market price of shares is also not considered In the objective of profit maximization ‘+ Profit maximization has the above-mentioned drawbacks, but stl, tis considered important because continued profit do wealth maximization for the shareholders. > February 2019 Wealth Maximization: + The objective of wealth maximization is a universally accepted conceptiin the field of business. The term wealth means shareholder's wealth. A shareholder's current wealth in the firm is the product of the number of shares owned, multiplied with the current stock price per share. The individual shareholder can use this ‘wealth to maximize his individual utility. Thus wealth maximization is maximizing shareholders utility + Wealth maximization objective helps in increasing the market value of shares ‘The share's market price is a performance index of the progress of a firm. It also indicates the performance of management on the behalf of the shareholder. «+ Through the process of discounting, wealth maximisation takes care of the quality of cash flow. ips thetactactr comifactshmaragemertfirancial managemerthveath-masimizaion53a/ansz019 ‘Wealth maximization and Prof maximization @ comparative sty ‘+The risks that are associated with cash flow are adequately reflected when present values are taken to arrive at the net present value of any project. Points in favour of Wealth Maximization: ‘+ overcomes the limitations of the policy of profit maximization, ‘+ It serves the interests of suppliers, fnancers, employees, management, consumers, and society, ‘+The concept of wealth maximization is based on the concept of cash flows, Cash flows are a reality and not based on any subjective interpretation, ‘+ Wealth maximization considers the time value of money. Time value of money translates cash flow occurring at different periods Criticism on Wealth Maximization: + tis a prescriptive idea. The objective is not descriptive of the policies the firm has to adaptto achieve wealth maximization. The policies of diferent frms may be diferent + The objective of wealth maximization may also face difficulties when ownership and management are separated as is the case in most of the large corporate form of organizations. ‘+ Wealth maximization conceptis useful for equity shareholders and not to debenture holders and society Difference Between Profit Maximization and Wealth Maximization: Profit Maximization Profit Maximization is based on the increase in sales and accounting profs of the organization, It emphasizes on short-term goals. Itignores the time value of money. ItTeads to the explotation of employees and “The concept of proft lacks cary. proft is neither defned precisely nor correctly. ‘Companies sticking to this pocy stick to the same produc ine without modification or upgradation The object is profi maximization hence the quality of the product may not be maintained, Woalth Maximization \Wealth Maximizaton is based on the cash flows into the organization, It emphasizes on long-term goals. Itconsiders the tie value of money. It serves the interests of suppliers, fnancers, employees, management, consumers, and society ‘The concept is defined precisely but pocies to achieve the object not elaborated. Companies using this policy bring new Innovative products and services to The alm sto produce qualty products at a low cost ips thetactactr comifactsimaragemertfirancial_ managemerthveath-maximizaion530/ansz019 ‘Wealth maximization and Prof maximization comparative sty Prof Maximization ignores the risk and | Wealth Maximization considers the risk and Uncertainty uncertainty < PREVIOUS POST NEXT POST > Comments (1) KAJUBI MARCH 30,2019 REPLY goods notes help to share with us on mails Leave a comment Your Message Your Name (Requit Your Email (Requir Your Website SUBMITNOW ips thetactactr comifactshmaragemertfirancial managemerthveath-masimizaion53a/ans2019 ‘Wealth maximization and Prof maximization @ comparative sty Recent Posts > Use of Microbes: Sewage Treatment and Biogas > Industial Uses of Microbes > Household Uses of Microbes > Sheep, Goat, and Pig Farming > Fisheries and Pisciculture Archives Select Month Recent Comments KumurPapa on Management Perspective, Objectives and Effectiveness Wiliam Smith on Soil Profile John Merty on Seed Dormancy ‘Abu Bakarr on Wits and Their Types jasson on Introduction to Statistics Categories Select Category Developed by Think Up Themes Ltd. 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