The document discusses the conflict between profit maximization and wealth maximization as objectives for businesses. Profit maximization focuses on earning the highest profit in the short term but has drawbacks such as ignoring the time value of money and risk factors. In contrast, wealth maximization aims to increase the market value of the firm’s shares, considers long-term growth, and addresses shareholder interests, making it a more comprehensive objective.

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