Question

what is the major goal of a company? Can you tie it to intrinsic value?

Why do managers tend to maximize the market price but not the intrinsic value?

Answer 1

The primary goal of a company is to maximize wealth of the shareholders in the long run. Shareholder wealth can be increased by increasing the market price of the shares in the company or by increasing the intrinsic value of the shares of the company. But maximizing the intrinsic stock value is the most important goal of a company.

Intrinsic value refers to the value of a company measured by fundamental analysis.

Shareholder wealth is represented by the market price of a company’s stock. Market value is measured as the price of the company’s stock that trades in the market. So, companies tend to pursue the objective of increasing the market price of a company’s share. Maximizing the intrinsic value will increase the stock price in the long run but not in the short run.

I hope that was helpful :)