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The FM is responsible wealth maximization of its owner’s. What does this mean? Why not maximize...

  1. The FM is responsible wealth maximization of its owner’s. What does this mean? Why not maximize profits instead?
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Answer #1

Wealth maximization for owners is long term plan. Wealth maximization includes profits, good will , revenues , financial ratio. This helps in attaining a good share price. Wealth maximization is more concerned with the value of stock. Wealth maximization is based on the share price which includes value of all information available. Hence it includes all the risks involved.

Profits maximization is not required because they are short term and does not signify risk. Profits are not the only factor affecting share price. It does not include time value of money risk involved of future profits.

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