Question

How is wealth maximization a better operative criteria than profit maximization?

Answer 1

Financial Management is concerned with the proper utilization of funds in such a manner that it will increase the value plus earnings of the firm. Wherever funds are involved, financial management is there. There are two paramount objectives of the Financial Management: Profit Maximization and Wealth Maximization. Profit Maximization as its name signifies refers that the profit of the firm should be increased while Wealth Maximization, aims at accelerating the worth of the entity.

Profit maximization is the primary objective of the concern because of profit act as the measure of efficiency. On the other hand, wealth maximization aim at increasing the value of the stakeholders.

There is always a conflict regarding which one is more important between the two. So, in this article, you will find the significant differences between Profit Maximization and Wealth Maximization, in tabular form.

Answer 2

Answer:

A company's long-term goal of expanding its value or worth in a way that significantly benefits its stakeholders is known as wealth maximization.

Explanation:

• The proper use of funds in a way that will raise the company's worth and earnings is the focus of financial management. Financial management is present anywhere money is concerned. Profit maximization and wealth maximization are the two main goals of financial management. As the name suggests, profit maximization refers to increasing a company's profits, whereas wealth maximization strives to raise an entity's value.

• Because profit serves as a gauge of efficiency, maximizing profit is the company's main goal. The goal of wealth maximization, on the other hand, is to increase the value of the stakeholders.

• Which of the two is more significant is a constant source of debate. Therefore, you will find a table listing the key distinctions between profit maximization and wealth maximization in this article.

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