Wealth Maximization is superior then the profit maximization

Wealth Maximization is superior then the profit
maximization Discuss

1. Presented By :
Bhanu Prakash .A
(2VX13MBA02)
Wealth Maximization is superior then the profit
maximization Discuss
Presentation On

2. Meaning
<*> Profit Maximization :
Profit Maximization is the traditional and Narrow
approach, in this process Companies undergo to Determine the
best Output and price levels in order to maximize its return The company
will usually adjust influential factors such as production costs, sale price,
and output levels as a way of reaching its profit goal.

<*> Wealth Maximization :
The wealth maximization objective is almost
universally accepted goal of a firm. According to this objective, the
managers should take decisions that maximize the shareholders' wealth. In
other words, it is to make the shareholders as rich as possible.
Shareholders' wealth is maximized when a decision generates net present
value.

3. Wealth Maximization Is superior Then
Profit Maximization
Firstly, the wealth maximization is based on cash flows and not
profits. Unlike the profits, cash flows are exact and definite and
therefore avoid any ambiguity associated with accounting profits.
Secondly, profit maximization presents a shorter term view as
compared to wealth maximization. Short term profit maximization can
be achieved by the managers at the cost of long term sustainability of
the business.
Thirdly, wealth maximization considers the time value of money. It
is important as we all know that a dollar today and a dollar one year
latter do not have the same value. In wealth maximization, the future
cash flows are discounted at an appropriate discounted rate to represent
their present value.
Fourthly, the wealth maximization criterion considers the risk and
uncertainty factor while considering the discounting rate. The
discounting rate reflects both time and risk. Higher the uncertainty, the
discounting rate is higher and vice-versa.

4. Wealth Maximization Is superior Then
Profit Maximization (Cont…)

Wealth Maximization is superior to the profit maximization because
the main of the business concern under this concept to improve the
value or wealth of the shareholder
 Wealth Maximization considers the comparison of the value to cost
associated with the business concern. Total value detected from the
total cost incurred the business operation.
 Wealth maximization consider both time and risk of the business.
 Wealth Maximization provide s efficient allocation of
resource
 It ensures the economic interest of the society