How shareholders wealth can maximize?

Answer 1

Shareholders wealth can be maximized by maximizing Return on Equity, which is equal to Net Income divided by equity. The higher the net income the more the stock price will increase which will maximize their wealth.

Answer 2

The shareholder invests money in a business expecting some kind of economic return. Returns have two flavours: dividends and increasing share prices. In order to pay dividends the company must generate cash. The company's ability to generate cash can be expressed by the financial figures EBITDA (earnings before interest, tax, depreciation and amortisation) and EPS (earnings per share). In order to have share prices increase the company must invest money in cash generating assets and activities like new production plants, product development or marketing activities. Value is only created when the benefit of the investment is bigger than the cost of the investment. If a shareholder invests her money in a company and gains no return, the money is better invested elsewhere. The more money you invest, the higher asset value, the more cash generated (hopefully), the higher share prices, payouts of dividends and higher shareholders' value. Thus the maximization matter is actually a question of competing for the investors' money.

Answer 3

Yes. Maximizing share holder wealth is the most important aspect considered while taking any decision for an organization.