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.
what is ultimate goal of firms.
Both profit maximization and wealth maximization have the objective of increasing the net worth.
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.
it is operating cost
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.
Sure, profit maximization relates to profits *only* while shareholder wealth also involves total company equity, debt ratios and any of 15 other financial performance measure ratios. Management could focus on profit maximization over a longer period of time, say, 40 years (Toyota), while the shareholder would rather see stock values and corporate total value increase immediately (get in and get out) (90% of American manufacturers). If management focused on short-term profit maximization, say at the expense of long term sales revenues, then shareholder wealth (stock price) could actually decrease as a result of the loss of market share. The conflict of interests between shareholders and executives is an example of the "principle-agent problem."
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
the difference between Profit maximisation and share price maximisation
Both profit maximization and wealth maximization have the objective of increasing the net worth.
Not necessarily
Value maximization and profit maximization are very much related, the main difference being- value maximization means increases in owners' wealth achieved by maximizing of the value of a firm's common stock. profit maximization is the process by which a firm determines the price and output level that returns the greatest profit. the other difference among the two could be sited as- value maximization is seen as long term objective of a firm, whereas profit maximization is generally a short term objective.
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 increase the graph of outputs.
Shareholder wealth maximization is considered to be a more appropriate goal for the firm than profit maximization
yes
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.
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.