What is the difference between profit maximization and maximization of shareholder wealth

The time value of money is often ignored when measuring profit. It leads to uncertainty of returns. Two firms which use same technology and same factors of production may eventually earn different returns.

Ensures economic interest of society: When wealth of shareholder is maximized, it ultimately upholds economic interest of society. Wealth maximization is superior to the profit maximization because the main aim of the business concern under this concept is to improve the value or wealth of the shareholders. It provides extract value of the business concern. This concept considers both time and risk of business concern.

Profit maximization typically is defined as a more static concept than shareholder wealth maximization. There are two ways to make money from owning shares of stock: dividends and capital appreciation. Dividends are cash distributions of company profits. Capital appreciation is the increase in the share price itself. When a company can increase earnings, the ratio increases and investors view the company as more valuable. Begin typing your search term above and press enter to search.

Press ESC to cancel. Skip to content Home Arts What is the difference between profit maximization and wealth maximization? Ben Davis February 17, Profit maximization helps the company in surviving against all the odds of the business and requires some short-term perspective to achieve the same. Though in the short term, the company can ignore the risk factor, it can not do the same in the long-term as shareholders have invested their money in the company with expectations of getting high returns on their investment.

Wealth Maximization takes into account the interest concerning shareholders, creditors or lenders, employees, and other stakeholders. So, a company can take any number of decisions for maximizing profit, but when it comes to decisions concerning shareholders, then Wealth Maximization is the way to go. This article has been a guide to Wealth Maximization vs.

Profit Maximization. Here we discuss the top difference between Wealth Maximization and Profit Maximization along with Infographics and comparison table. You may also have a look at the following articles —. Free Accounting Course. Login details for this Free course will be emailed to you. Forgot Password?

Article by Melvin Sewak. Therefore, it can be said that for day to day decision making, Profit Maximization can be taken into consideration as a sole parameter but when it comes to decisions which will directly affect the interest of the shareholders, then Wealth Maximization should be exclusively considered. This article looks like even layman also can understands easily. Thanks For Your contribution to the society.

A wonderful defintion of the difference between profit and wealth maximization. It has been of great help. This is really beneficial, I find it really helpful and now I have a clear understanding of what profit maximization means, thank you.

Thank you so much to all the readers for sharing your views with us. We are really glad to know that the article helped you. Perfect, the explanation is so clear and understandable. Short decison profit maximization, long term decision that protect shareholders interest wealth maximization. Your email address will not be published. Save my name, email, and website in this browser for the next time I comment.

Key Differences Between Profit Maximization and Wealth Maximization The fundamental differences between profit maximization and wealth maximization is explained in points below: The process through which the company is capable of increasing earning capacity known as Profit Maximization.

On the other hand, the ability of the company in increasing the value of its stock in the market is known as wealth maximization. Profit maximization is a short term objective of the firm while the long-term objective is Wealth Maximization.

Profit Maximization ignores risk and uncertainty. Unlike Wealth Maximization, which considers both. Profit Maximization avoids time value of money, but Wealth Maximization recognises it. Profit Maximization is necessary for the survival and growth of the enterprise.

Conversely, Wealth Maximization accelerates the growth rate of the enterprise and aims at attaining the maximum market share of the economy. Comments Good.