Why is profit maximization an inferior objective

There is always a conflict regarding which one is more important between the two. So, in this article, you will find the significant differences between Profit Maximization and Wealth Maximization, in tabular form.

Basis for Comparison Profit Maximization Wealth Maximization Concept The main objective of a concern is to earn a larger amount of profit. The ultimate goal of the concern is to improve the market value of its shares. Emphasizes on Achieving short term objectives.

Achieving long term objectives. Consideration of Risks and Uncertainty No Yes Advantage Acts as a yardstick for computing the operational efficiency of the entity. Gaining a large market share. Profit Maximization is the capability of the firm in producing maximum output with the limited input, or it uses minimum input for producing stated output.

It is termed as the foremost objective of the company. It has been traditionally recommended that the apparent motive of any business organisation is to earn a profit, it is essential for the success, survival, and growth of the company. Profit is a long term objective, but it has a short-term perspective i.

Profit can be calculated by deducting total cost from total revenue. Through profit maximization, a firm can be able to ascertain the input-output levels, which gives the highest amount of profit. Therefore, the finance officer of an organisation should take his decision in the direction of maximizing profit although it is not the only objective of the company. Wealth maximizsation is the ability of a company to increase the market value of its common stock over time.

Your email address will not be published. Close Menu About Us. Terms of Service. Privacy Policy. Tags Financial management , Profit maximization. Good points. Very true am impressed. And it can be measured by adopting following relation:.

At times, wealth maximization may create conflict, known as agency problem. This describes conflict between the owners and managers of firm. Owners appoints managers as their agents to act on behalf of them.

He is passionate about keeping and making things simple and easy. Running this blog since and trying to explain "Financial Management Concepts in Layman's Terms". I almost forgot financial management subject as I teach HRM. The explanation has renewed what I studied years back. Save my name, email, and website in this browser for the next time I comment. Table of Contents Agency Problem. Help us make this article better. Profit Maximization in detail.

Comments Content is very good. Please select the batch. Cookies help us provide, protect and improve our products and services. By using our website, you agree to our use of cookies Privacy Policy. It is defined as the management of financial resources aimed at increasing the value of the stakeholders of the company.

It is defined as the management of financial resources aimed at increasing the profit of the company. Focuses on increasing the value of the stakeholders of the company in the long term. Focuses on increasing the profit of the company in the short term.