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    Difference Between Profit Maximization and Wealth Maximization Financial Management

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    Ankush Kujur
    This document compares and contrasts profit maximization and wealth maximization as objectives of financial management. Profit maximization focuses solely on increasing profits but ignores risk, uncertainty, and the timing of returns. Wealth maximization takes a broader view, aiming to maximize the market price of the company's shares by considering factors like earnings per share, risk, dividend policy, and future prospects that impact share price. While profit maximization is a short-term goal, wealth maximization looks at long-term value creation and sustainability by balancing risks and returns to maximize shareholder wealth as reflected in share price.

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    Difference Between Profit Maximization and Wealth Maximization Financial Management

    Uploaded by

    Ankush Kujur
    72 views6 pages
    This document compares and contrasts profit maximization and wealth maximization as objectives of financial management. Profit maximization focuses solely on increasing profits but ignores risk, uncertainty, and the timing of returns. Wealth maximization takes a broader view, aiming to maximize the market price of the company's shares by considering factors like earnings per share, risk, dividend policy, and future prospects that impact share price. While profit maximization is a short-term goal, wealth maximization looks at long-term value creation and sustainability by balancing risks and returns to maximize shareholder wealth as reflected in share price.

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    Difference Between Profit Maximization and Wealth Maximization Financial Management

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    This document compares and contrasts profit maximization and wealth maximization as objectives of financial management. Profit maximization focuses solely on increasing profits but ignores risk, uncertainty, and the timing of returns. Wealth maximization takes a broader view, aiming to maximize the market price of the company's shares by considering factors like earnings per share, risk, dividend policy, and future prospects that impact share price. While profit maximization is a short-term goal, wealth maximization looks at long-term value creation and sustainability by balancing risks and returns to maximize shareholder wealth as reflected in share price.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    72 views6 pages

    Difference Between Profit Maximization and Wealth Maximization Financial Management

    Uploaded by

    Ankush Kujur
    This document compares and contrasts profit maximization and wealth maximization as objectives of financial management. Profit maximization focuses solely on increasing profits but ignores risk, uncertainty, and the timing of returns. Wealth maximization takes a broader view, aiming to maximize the market price of the company's shares by considering factors like earnings per share, risk, dividend policy, and future prospects that impact share price. While profit maximization is a short-term goal, wealth maximization looks at long-term value creation and sustainability by balancing risks and returns to maximize shareholder wealth as reflected in share price.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 6

    Difference Between Profit

    Maximization and Wealth


    Maximization | Financial
    Management
    by Smriti Chand Difference

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    Difference Between Profit Maximization and Wealth


    Maximization!

    Profit Maximization:

    The objective of financial management is profit maximisation. It


    cannot be the sole objective of a company as there is a
    directs/relationship between risk and profit. If profit
    maximisation is the only goal, then risk factories ignored.
    Sometimes, higher the risk, higher is the possibility of profits.
    Hence, risk has to be balanced with the objective of profit
    maximisation. In addition, a firm has to take into account the
    social considerations, and normal obligations to the interests of
    workers, consumers, society, government, as well as ethical trade
    practices. However, as profit maximisation ignores risk and
    uncertainty and timing of returns, a firm can’t solely depend on
    the objective.

    Wealth Maximisation:

    Hence, the objective of a firm is to maximise its wealth and the


    value of its shares. According to van Home value is represented
    by the market price of the company’s common stock. The market
    price of a firm’s stock takes into account present and prospective
    future earnings per share (EPS), the timing and risk of these
    earnings, the dividend policy of the firm and many other factors
    that bear upon the market price of the stock.

    The concept of wealth in the context of wealth maximisation


    objective refers to the shareholders’ wealth as reflected by the
    market price of their shares in the share market. Hence,
    maximisation of wealth means maximisation of the market price
    of the equity shares of the company.

    Profit Maximisation Vs Wealth Maximisation:

    Total profits are not as important as earnings per share. Even


    maximisation of earnings per share is not enough because it does
    not specify the timing or duration of expected returns. Further, it
    does not consider the risk of uncertainty of the future earnings.
    Hence, wealth maximisation is appropriate and it is possible by
    maximising the market price per share.

    According to Prof. Ezra Soloman, wealth maximisation also


    maximises the achievement of other objectives. Maximisation of
    wealth of the firm implies maximisation of value of owner’s
    share capital reflected in the market price of shares. Therefore,
    the operative objective of financial management implies
    maximisation of market price of sharesy.

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