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In financial theory the objective is to maximize shareholder wealth and not maximize profit?
Wiki User
∙ 12y ago
Maximizing shareholder wealth and maximizing profit goes hand in hand. A firm maximizes shareholder wealth by investing in projects that will increase profits and the cash flows of the firm, finding ways to prudently cut variable and fixed operating costs and creating products that will increase revenues. The firm's executives must also manage the company and its operations in a fiscally responsible manner in order to increase the profitability of the company. By taking these steps the firm therefore increases the shares of its stocks which increases shareholder wealth.
Wiki User
∙ 12y ago
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What is the goal of an organization?
It depends on what type of an organization it is. If it is a privately owned organization the goal is "To Maximize Profit" If it is a Public limited company (Has its shares listed in the stock market) the goal is "To Maximize shareholder wealth"
Explain the rationale for selecting shareholders wealth maximizatio as the objective of the firm?
Explain the rationare for selecting shareholder wealth maximization as the objective of the firm.Include a consideration of profit maximization as an alternative goal
What is the objective of financial PR companies?
Financial public relations companies specialize in messaging for financial institutions or, more broadly, for-profit corporations. The objective generally is to promote the brand(s) and increase their positive public image.
Primary goal of the financial manager of a seeking organization is to?
profit seeking organization goal would be to maximize owners' wealth
What's the main goal of a publicly-traded corporation?
The main goal of virtually every publicly-owned company has always been to maximize shareholder value by generating as much profit as possible
The objective of Management is to maximize profits?
It is a true statement that the objective, or goal, of management is to maximize profits. Another term for profit would be financial gain.
Objectve of hrn in present content?
The traditional objective of a firm is to maximize shareholder wealth. This is mostly done through profit maximisation. This objective is questionable now though as the pursuit of profit can come at the expense of natural resources, the environment, labour standards etc.
Which is more comprehensive objective profit maximization or shareholder wealth 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.
What is the primary objective of the firm?
Profit maximization. Also called maximizing shareholder wealth.
When a firm is maximizing profit what else will it maximize?
When a firm maximizes its profit, it automatically maximizes its shareholder value. When both profit and the shareholder value increase, in course of time, the overall firm value will increase. All these would undoubtely increase its share price in the market as well.
What is the goal of financial decisions?
To make a profit or a bigger profit. To maximize the wealth of stockholders or price of the shares
What is the goal of an organization?
It depends on what type of an organization it is. If it is a privately owned organization the goal is "To Maximize Profit" If it is a Public limited company (Has its shares listed in the stock market) the goal is "To Maximize shareholder wealth"
Profit maximization is the basic objective of firm?
A firm's main objective should be to make decisions that maximize the value of the company for its owners, and as the owners of a company are its shareholders, the main financial objective should be 'the maximization of shareholder wealth'. Since shareholders receive their wealth through dividends and capital gains, shareholder wealth will be maximized by maximizing the value of dividends and capital gains that shareholders receive over time. Problems with the 'maximization of profits' objective: Firstly, there are quantitative difficulties associated with profit. Maximization of profits as a financial objective requires the profit to be defined and measured accurately, and that all the factors contributing to it are known and can be taken into account. It is very doubtful that this requirement can be met on a regular basis. E.g- If 5 auditors go into the same company, it is very likely that each will come out with a completely different profit figure. A second problem concerns the timescale over which the profit should be maximized. Should profit be maximized in the short term or the long term?? Given that profit considers one year at a time, the focus is likely to be on short-term profit maximization at the expense of long-term investment, putting the long term survival of the company into doubt. There are many examples of companies going into liquidation shortly after declaring high profits. Check out - Polly Peck Plc's dramatic failure in 1990! (good example) The third problem is that profit does not take account of or make any allowance for risk! It would be inappropriate to concentrate efforts on maximizing accounting profit when this objective does not consider one of the key determinants of shareholder wealth. So the 'maximization of profit' is not a suitable core objective for a company. That is not to say that a company does not need to pay attention to its profit figures, since falling profits of profit warnings are taken by the financial markets as a sign of financial weakness. Instead these sort of profit targets/objectives should can serve a useful purpose in helping a company to achieve short-term or operational objectives within its overall strategic plan.
Explain the rationale for selecting shareholders wealth maximizatio as the objective of the firm?
Explain the rationare for selecting shareholder wealth maximization as the objective of the firm.Include a consideration of profit maximization as an alternative goal
Why the main objective of a firm is to maximize profit?
Because they need money to stay at float and be able to compete with other companies.
What is the objective of financial PR companies?
Financial public relations companies specialize in messaging for financial institutions or, more broadly, for-profit corporations. The objective generally is to promote the brand(s) and increase their positive public image.
Primary goal of the financial manager of a seeking organization is to?
profit seeking organization goal would be to maximize owners' wealth
