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?

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 2 years ago

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