Goal of the Firm- Maximize Profit, Maximize Shareholder Wealth, & Stakeholder Wealth ?
Goal of the firm
Maximize Profit?
Maximize Shareholder Wealth?
What about Stakeholders?
What is Profit Maximization? Why profit max is not good enough? What are constraints of Profit Max?
Profit maximization refers to how much dollar profit the company makes. It is a short term approach and a myopic person or business is mostly concerned about short term benefits.
But a short term horizon can fulfill objective of earning profit but may not help in creating wealth. It is because wealth creation needs a longer term; therefore financial management emphasizes on wealth maximization rather than profit maximization.
For a business, it is not necessary that profit should be the only objective; it may concentrate on various other aspects like increasing sales, capturing more market share, return on capital etc, which will take care of profitability. So, we can say that profit maximization is a subset of wealth and being a subset, it will facilitate wealth creation.