A simple and comprehensive presentation on Profit maximization v/s Wealth Maximization. By Arvinder Pal Kaur Faculty of Management Northwest Group of Institutions Dhudhike, MOGA

1. S
Profit maximization VS
Wealth maximization
-The conflict

2. Broadly, there are two
alternative objectives that a
business firm can pursue
 Profit Maximization
 Wealth Maximization

3. Profit Maximization
S It is a term which denotes the maximum profit to be
earned by an organization in a given period of time.
S The profit maximization goal implies that the
Investment, Financing and Dividend decisions of the
enterprise should be oriented to profit maximization.

4. Merits of Profit Maximization
S Best Criterion on decision making.
S Efficient allocation of resources.
S Optimum utilization.

5. Drawbacks of Profit
Maximization
S It ignores time value of money.
S It is vague conceptually.
S It ignores the risk factor.
S It may tempt to make such decisions which may in
the long run prove disastrous.
S Its emphasis is generally on Short run projects.
S In the new business environment Profit maximization
is regarded as unrealistic, difficult, inappropriate
and immoral.

6. Wealth Maximization
S Fundamental objective of wealth maximization is to
maximize the market value of the firm’s shares.
S Maximizes the net present value of a course of
action to the shareholders.
S Accounts for the timing and risk of expected
benefits.
S Benefits are measured in terms of cash flows.

7. Merits of Wealth Maximization
S The wealth maximization objective takes care of the:
 Shareholder’s interest
 lender’s or creditor’s interest
 Worker’s or employees’ interest
 It also ensures fair return to the shareholders, building up
reserves for growth and expansion, ensuring financial
discipline in the management.

8. Merits of Wealth Maximization
S It focuses on the long term.
S It takes into account the time value of money.
S It considers risk.
S It maintains market price of the shares of the
organization.
S It recognizes the value of regular dividend
payments.

9. Conflict
Profit Maximization
S Its main objective is to earn
large amount of profits.
S It emphasizes short term
S It ignores time value of
money.
S It ignores risk and uncertainty.
S It ignores timimg of return
Wealth Maximization
S Its main objective is to achieve
highest market value of common
stock.
S It emphasizes long term
S It considers time value of money.
S It recognizes risk and uncertainty.
S It recognizes the timings of
return.

10. Thank you