Wealth maximization is superior to profit maximization for several reasons. Wealth maximization considers long-term sustainability rather than short-term profits. It accounts for the time value of money by discounting future cash flows. Wealth maximization also factors in risk and uncertainty through the discount rate. The goal of wealth maximization is to improve shareholder value, while considering the total value generated relative to costs for the business. It provides a more efficient allocation of resources while also ensuring benefits to society.

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 thetraditional and Narrow
approach, in thisprocessCompanies undergo to Determine the
best Output and pricelevels in order to maximizeits return Thecompany
will usually adjust influential factors such asproduction costs, saleprice,
and output levels asaway of reaching its profit goal.
<*> Wealth Maximization :
Thewealth maximization objective isalmost
universally accepted goal of afirm. According to thisobjective, the
managersshould takedecisionsthat maximizetheshareholders' wealth. In
other words, it isto maketheshareholdersasrich aspossible.
Shareholders' wealth ismaximized when adecision generatesnet present
value.

3. Wealth Maximization Is superior Then
Profit Maximization
 Firstly, thewealth maximization isbased on cash flows and not
profits. Unliketheprofits, cash flowsareexact and definiteand
thereforeavoid any ambiguity associated with accounting profits.
 Secondly, profit maximization presentsa shorterterm view as
compared to wealth maximization. Short term profit maximization can
beachieved by themanagersat thecost of long term sustainability of
thebusiness.
 Thirdly, wealth maximization considersthe time value of money. It
isimportant asweall know that adollar today and adollar oneyear
latter do not havethesamevalue. In wealth maximization, thefuture
cash flowsarediscounted at an appropriatediscounted rateto represent
their present value.
 Fourthly, thewealth maximization criterion considersthe risk and
uncertainty factor whileconsidering thediscounting rate. The
discounting ratereflectsboth timeand risk. Higher theuncertainty, the
discounting rateishigher and vice-versa.

4. Wealth Maximization Is superior Then
Profit Maximization (Cont…)

Wealth Maximization issuperior to theprofit maximization because
themain of thebusinessconcern under thisconcept to improvethe
valueor wealth of theshareholder
 Wealth Maximization considersthecomparison of thevalueto cost
associated with thebusinessconcern. Total valuedetected from the
total cost incurred thebusinessoperation.
 Wealth maximization consider both timeand risk of thebusiness.
 Wealth Maximization providesefficient allocation of
resource
 It ensurestheeconomic interest of thesociety