Goals of firm business finance.

1. Goals of the firm
Presented by
Rishi Ram Khanal
BIM (TU)
Roll no:108

2. Content
 Introduction
 Profit maximization
 Weaknesses of Profit maximization
 Wealth Maximization
 Shareholders' wealth maximization

3. introduction
 This topic introduces the area of
finance and discusses the role of
finance managers in companies
 the main objective and mission of the
company in maximizing the wealth of
the shareholders

4. Profit maximization, sales
maximization, cost
minimization, service
maximization, wealth
maximization etc. Major goals
are:
 Profit Maximization
 Wealth Maximization

5. Profit Maximization
 Business firms are the economic institutions
& their primary goal is to increase profit.
Reasons:
a. Maximization of the firm’s earnings.
b. An indication of success of business firm.
c. It indicates efficient utilization of various
resources.
d. Profit is better incentive to work.
e. Firm can take part in different social
activities.
f. It increases the competitive strengths of
the firm.

6. Weaknesses of Profit
maximization:
 Goal is not clear
 Ignores time value of money
 Ignores risk factor
 Ignores social responsibilities

7. Wealth Maximization
 This goal emphasizes to increase in
wealth position of shareholders
through the value maximization of
firm.
 The value of the firm is maximized
when the net present value (NPV) is
increased.
 NPV= Total present value- Initial
investment. = TPV –

8. Shareholders' wealth
maximization
It is a superior goal of the firm than profit
maximization due to following reasons:
a. Wealth maximization goal is clear
b. It considers time value of money
b. It considers risk factor
c. It considers Quality of cash flow
d. It considers macro perspectives

9. Any questions ?
Thank you