You might have heard so many times that the goal of financial management is to maximize...

You might have heard so many times that the goal of financial management is to maximize the current value (price) per share of the existing stock of a company. In addition, it is widely know that, by maximizing the value of the stock, the value of the company will be maximized as well. Based long-term investing do you agree or disagree? Why?

Solutions

Expert Solution

Ans.Yes, I agree with the statement.

Unlike profit, value is a long run concept. The value of the firm is actually is the value of the firm's equity. The movement is the market price of the firm's equity determines the value of the firm.

Good companies are valued higher by the investors in the market and hence their share price trade at a much higher level as compared to their initial listed value.

The value or wealth of the firm is a dynamic function of the overall performance of the firm and efficient coherence of firm's investment, financing and dividend decisions.

As per wealth maximization approach, the shareholders can measure the value in terms of increase in their earnings per share as well as in the market price per share. This appreciation of investments prompts them to buy more shares and increase the trading of the firm's stock.

Increase in price of shares held by existing shareholders also attracts potential investors which also creates goodwill of the company in the market in long run.Fund procurement becomes easy and economical for such firms. Such firms are sought after by investors in the market. The demand for such firm's share continues as potential investors remain positive about the prospects of the firm and believe that in future the share price will increase further. thereby enhancing the value of their investments.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

The goal of international financial management is to maximize shareholders' wealth, same as that of financial management.

The goal of international financial management is to maximize shareholders' wealth, same as that of financial management. Then what are the four factors/topics that make international finance separate or special?

It is often argued that the goal of financial management is to maximize the value of...

It is often argued that the goal of financial management is to maximize the value of the firm for its owners. Prompt: Do you agree that this is the proper goal? Why or why not? Read Goizueta (1997) (Links to an external site.). Here, Goizueta defends Coca-Cola’s stated mission: “to create value over time for the owners of our business.” Prompt: Do you find his arguments persuasive? Why or why not? minimum 300 words

Your textbook states that the goal of financial management in a corporation is to maximize the...

Your textbook states that the goal of financial management in a corporation is to maximize the current stock price. Initially, this seems very short-sighted and could cause managers to violate ethical principles in pursuit of that goal. Is the textbook's definition of financial management flawed? How do we ensure that managers will act responsibly as stewards of the stockholder's resources?

The primary goal of financial management is to maximize profits. True False

1. It is often argued that the goal of financial management is to maximize the value...

1. It is often argued that the goal of financial management is to maximize the value of the firm for its owners. Do you agree that this is the proper goal? Why or why not? 2. Here, Goizueta defends Coca-Cola’s stated mission: "to create value over time for the owners of our business.”Do you find his arguments persuasive? Why or why not?

the primary goal of financial management of a firm is to maximize its stock price in...

the primary goal of financial management of a firm is to maximize its stock price in the short run. Improving ROE( return on equity) is usually translated into greater stock price. The question is how to improve ROE. Much research agrees that high ROE depends on good liquidity,__________ proper use of debt.

The primary goal of financial management is to maximize the market value of the existing stock.

The primary goal of financial management is to maximize the market value of the existing stock. Select one: True False

We learned that the ultimate goal of financial management is to maximize shareholders' wealth. Could this...

We learned that the ultimate goal of financial management is to maximize shareholders' wealth. Could this goal conflict with other goals, such as customer and employee safety, the environment and the general good of society? Should the firms take into consideration the well-being of the society in their effort to maximize shareholders' wealth? Try to think of some specific scenarios to illustrate your answer.

The main goal of the financial manager is to maximize _______

The main goal of the financial manager is to maximize _______ a) company profit b) stakeholder wealth c) investment capital d) shareholder wealth

There are many objectives of financial management in corporate. What is the main goal of financial management in the corporate?

Subjects