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Differentiate between profit maximisation and wealth maximisation?
Wiki User
∙ 12y ago
The traditional approach of financial management was all about profit maximization.The main objective of companies was to make profits.
The traditional approach of financial management had many limitations:
1.Business may have several other objectives other than profit maximization.Companies may have goals like: a larger market share, high sales,greater stability and so on.The traditional approach did not take into account so many of these other aspects.
2.Profit Maximization has to defined after taking into account many things like:
a.Short term,mid term,and long term profits
b.Profits over period of time
The traditional approach ignored these important points.
3.Social Responsibility is one of the most important objectives of many firms.Big corporates make an effort towards giving back something to the society.The big companies use a certain amount of the profits for social causes.It seems that the traditional approach did not consider this point.
Modern Approach is about the idea of wealth maximization.This involves increasing the Earning per share of the shareholders and to maximize the net present worth.
Wealth is equal to the the difference between gross present worth of some decision or course of action and the investment required to achieve the expected benefits.
Gross present worth involves the capitalised value of the expected benefits.This value is discounted a some rate,this rate depends on the certainty or uncertainty factor of the expected benefits.
The Wealth Maximization approach is concerned with the amount of cash flow generated by a course of action rather than the profits.
Any course of action that has net present worth above zero or in other words,creates wealth should be selected.
Wiki User
∙ 12y ago
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What do you mean by shareholders wealth maximisation?
analysis of shareholder wealth maximisation
What is Three basic reasons is profit maximization inconsistent with wealth maximization?
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
Why is wealth maximisation superoir to other objectives of business firm?
Every business including Not for profit need to make money to function. The financial income is always the first thing noted as without the income all other aspect will eventually cease.
What is the difference between shareholder's wealth maximization and shareholder's profit maximization?
Wealth is the accumulation of profit so it might seem that the two are maximized in the same way. But there are differences. Some examples:- Profit may be taxed. So wealth is maximized by maximizing the net of profit minus tax impacts which may occur in the future.- Increased value of an investment would add to wealth but would not show up as profit until the investment is sold.-Wealth may be obtained in ways other than profit. Receiving a gift or buying something for less than its real value may add to wealth but are not profit.-Stock buy-backs by a company produce no profit but increase stockholder wealth by driving up the value per share held.
What is a wealth maximisation?
Wealth maximization is a financial investment management tool that helps businesses increase profits and net worth. In addition, company shareholders are able to receive a higher return from their investment.
What are the similarities between profit maximisation objectives and wealth maximisation objectives?
Both profit maximization and wealth maximization have the objective of increasing the net worth.
Wealth maximization is a function of share price maximization discuss?
the difference between Profit maximisation and share price maximisation
What do you mean by wealth maximisation?
analysis of shareholder wealth maximisation
What do you mean by shareholders wealth maximisation?
analysis of shareholder wealth maximisation
What is Three basic reasons is profit maximization inconsistent with wealth maximization?
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
Will profit maximisation necessarily lead to wealth maximisation?
Assuming that you understand what is maximisation, the the question is left only with two words, profit and value.Profit = Incomes - Expenses, while value is simply the relative worth (in monetary or...analysis of shareholder wealth maximization.While it is easy to see why you might think this, theoretically a sponsorship should be useful as an advertisement. Furthermore, if the sponsorship is of a nonprofit such as a scholarship or an AYSO..
What is the difference between shareholder wealth maximisation and stakeholder wealth maximisation?
Shareholder and stakeholder in a company are the investors and company assets holder respectively. So the wealth maximization in both cases is nothing but increase in the share value for shareholder and company profitability for stakeholder.
Can there be difference between profit maximization and shareholders wealth maximization?
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
Short term profit maximisation is not appropriate objective for a business?
Because business take the long term aspects of the business and for that wealth maximization is more important than anything else.
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.
Why is wealth maximisation superoir to other objectives of business firm?
Every business including Not for profit need to make money to function. The financial income is always the first thing noted as without the income all other aspect will eventually cease.
What is the difference between shareholder's wealth maximization and shareholder's profit maximization?
Wealth is the accumulation of profit so it might seem that the two are maximized in the same way. But there are differences. Some examples:- Profit may be taxed. So wealth is maximized by maximizing the net of profit minus tax impacts which may occur in the future.- Increased value of an investment would add to wealth but would not show up as profit until the investment is sold.-Wealth may be obtained in ways other than profit. Receiving a gift or buying something for less than its real value may add to wealth but are not profit.-Stock buy-backs by a company produce no profit but increase stockholder wealth by driving up the value per share held.
