The overriding goal of financial management is to

Maximize shareholders' wealth

Maximize profit

Maximize sales

Maximize operational efficiency

Solutions

Expert Solution

Th Answer to this question is "Maximize Shareholders' Wealth"

We must think from the point of view of a Director/Manager in order to provide reason for our answer. What is you real goal?What were you appointed to achieve? On basis of what factors will you factor success of a business?

Well, an Investor invests in a business only if he gets something in return(Return on Investment). The better the ROI the more an investor is willing and confident to put his money in the shares of the company( or any form of business for that manner).

The ROI can be calculated by simple formulas such as the one where we divide Profit by the Shareholders funds. However, from investors' point of view this profit is not what he is after, sure the dividends are foremost but they provide no long term security.

To summarize:Profit Maximization is short term objective of business it emphasizes on achieving short term objects and shows operation efficiency of the business. On the other hand Wealth Maximization is focused on maximizing Market Value of shares and gaining a larger share of the market.

ekkarill92 answered 1 year ago

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