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PROFIT MAXIMIZATION Vs WEALTH MAXIMIZATION

This document compares profit maximization and wealth maximization. Profit maximization focuses on increasing short-term profits by arranging prices and costs, but ignores risk and the time value of money. Wealth maximization aims to increase long-term shareholder value through strategic investments, managing risk, and considering multiple external factors. While profit is important for short-term survival, wealth maximization better serves shareholders by taking a long view and accounting for risk.

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1K views5 pages

PROFIT MAXIMIZATION Vs WEALTH MAXIMIZATION

This document compares profit maximization and wealth maximization. Profit maximization focuses on increasing short-term profits by arranging prices and costs, but ignores risk and the time value of money. Wealth maximization aims to increase long-term shareholder value through strategic investments, managing risk, and considering multiple external factors. While profit is important for short-term survival, wealth maximization better serves shareholders by taking a long view and accounting for risk.

Uploaded by

Aman poddar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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PROFIT MAXIMIZATION

VS
WEALTH MAXIMIZATION
ABHINAV.M.MANGULKAR
FIN 02
Profit Maximization
 Profit maximization is the process by which a business arranges its prices and cost
structure to achieve the highest possible profit.

 The central goal of the organization is to increase its profits.

 It ignores the risk and avoids the time value of money.

 It is primarily concerned as to how the company will survive and grow in the
existing competitive business environment.
Wealth Maximization
 The ability of a company to increase the value of its stock for all the
stakeholders is referred to as Wealth Maximization.

 This may involve additional investments in intellectual property and strategic


positioning, as well as attention to managing the risk profile of a business.

 It is a long-term goal and involves multiple external factors like sales,


products, services, market share, etc.

 It assumes the risk and recognizes the time value of money given the business
environment of the operating entity.
Conclusion
 Profit is the basic building block of a company to accrue capital in the
shareholder’s equity. Profit maximization helps the company in surviving
against all the odds of the business and requires some short-term perspective
to achieve the same. Though in the short term, the company can ignore the
risk factor, it can not do the same in the long-term as shareholders have
invested their money in the company with expectations of getting high
returns on their investment.
 Wealth Maximization takes into account the interest concerning
shareholders, creditors or lenders, employees, and other stakeholders. Hence,
it ensures building up reserves for future growth and expansion, maintaining
the market price of the company’s share, and recognizes the value of regular
dividends
 So, a company can take any number of decisions for maximizing profit, but
when it comes to decisions concerning shareholders, then Wealth
Maximization is the way to go.

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