May 29, 2011

Profit Maximization vs Wealth Maximization

Profits - It is a fundamental objective of financial management. Profit maximization is intended to improve efficiency, maintain stability and reduce losses and inefficiencies.

Benefit may be seen in both directions in this context.
1. Maximizing profits for the owner.
2. Maximization of profit for others.
1. They are generally available with efficiency and it is the test of effectiveness.But this approach has limitations as the ambiguity of the term is not clearly how he has never been defined, varies from person to person.

2. Quality of earnings - profits are generally calculated in terms of cash. Normally referred to as the official profits, but ignored some basic ideas like waste, efficiency, skill requirements of workers, employees, sales, product mix, production processes, administrative installation.

3. Moment of the time value / benefit of profits - in inflationary conditions reduce the value of the gain and thus the benefits should not extend over a longer period comparable.

4. Some economists argue that profit maximization leads to some unhealthy tendencies and harmful to society and can not use, unhealthy competition and lead to abuse of position.
Maximization of wealth - one of the traditional

Approaches to financial management by maximizing the wealth we create and accumulation of wealth, property and assets on average over a longer period of time to take care when to maximize profits, its limitations, it is run wealth maximization in the true sense of the search, this is a long-term cash flows that the profits were so it may be a

Situation where a company is losing money every year, but there are cash prizes for the severe impairment, which indirectly suggests high levels of investment in fixed capital and is the real wealth, and takes into account the time value money and it is generally accepted.

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