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Asked a question 3 years ago

What is the conflict in profit v/s wealth maximization objective?

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Objective of profit maximization is to earn maximum amount of profit while wealth is to improve the value of its stock. Profit maximization focuses on achieving short term goals on the other hand wealth is to achieve long term goal. There is no consideration of risk and uncertainty in profit maximization while wealth maximization considers risk and uncertainty. Profit maximization ignores time value of money(TVM) but wealth maximization consider it. There is always a contradiction between the two as we cannot say which one is better. If the company has an objective of wealth maximization, it means that the company will promote only those policies that will lead to an efficient allocation of resources. Profit maximization is the sole parameter when it comes to daily decision making but wealth maximization is considered when it comes to affecting the interest of the shareholders. If someone wants to invest in share of a specific company, then he will look upon the good returns he will get or if the financial manager takes wrong decisions , then shareholders will automatically lose their interest in the company and value of shares will fall .