Wealth Maximization

Question No.1. (b) How is wealth maximization a better criterion than profit maximization?

Solution: A good goal must be clear, timely measurable and consistent. So must be the goal of financial management. A firm may have different goals e.g., production goals, sales goal, and financial management goal. But what is the main goal of financial management? The main goal of financial management should be such that is directed to achieve the ultimate goal of a firm. The ultimate goal, as a good consensus, of a film is to maximize the shareholders’ wealth i.e wealth maximization. This in operational terms means:

1. Maximization of profit
2. Maximization of Return on capital employed
3. Growth in earning per share or market value of a share or dividends
4. Optimum level of leverage
5. Minimization of costs of capital.

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