How wealth maximization is superior than profit maximization?

Favourable Arguments for Wealth Maximization (i) 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. (ii) It takes into account time value of money.

Do you think shareholders wealth maximization is superior to profit maximization?

Every corporate action finds its reflection on the market value of shares of the company. Therefore, shareholders wealth maximization could be considered a superior go al compared to profit maximization.

Why wealth maximisation is preferred compared to profit maximisation?

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.

What are the disadvantages of wealth maximization?

Disadvantages

• It is more based on an idea that is prospective and not descriptive.
• The objectives laid in such a technique are not clear.
• Wealth maximization is to a great extent dependant on the profitability.
• It is based on the generation of cash flows and not on the accounting profit.

Which is better wealth maximization or profit maximization?

Wealth Maximization Is superior Then Profit Maximization Firstly, thewealth maximization isbased on cash flows and not profits. Unliketheprofits, cash flowsareexact and definiteand thereforeavoid any ambiguity associated with accounting profits. Secondly, profit maximization presentsa shorterterm view as compared to wealth maximization.

Why is profit maximization considered a legitimate objective of a firm?

Justify your answer Profit maximization has been considered as the legitimate objective of a firm because profit maximization is based on the cardinal rule of efficiency. Under perfectcompetition allocation of resources shall be based on the goal of profit maximization.A firm’s performance is evaluated in terms of profitability.

Are there any drawbacks to profit maximization?

Some of the drawbacks of profit maximizations are In Profit Maximization, profit is not defined precisely or correctly. It creates some unnecessary opinion regarding earning habits of the business concern. For example, profit may be long term or short term. It may be total profit or rate of profit.

Is the allocation of resources based on profit maximization?

Under perfectcompetition allocation of resources shall be based on the goal of profit maximization.A firm’s performance is evaluated in terms of profitability. Investor’s perception of company’s performance can be traced to the goal of profit maximization.