Question

In: Accounting

If a business wants to increase the wealth of its shareholders, it should focus on minimizing...

If a business wants to increase the wealth of its shareholders, it should focus on

minimizing costs.
maximizing revenues.
maximizing return on investment.
maximizing profits.

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Expert Solution

Answer:

If a company want to increase the wealth of their shareholders then it should focus on the following:

  • Minimizing costs: Costs will affect the profitability of the business. If a business has a lower cost of production with appropriate quality will results in increasing the revenue as if goods manufactured at a lower cost then the business will able to sell their product or services at a lower price than its rivals which increase the revenue for the business & due to this revenue will also be increased.
  • Maximizing Revenue: Increase in revenue of the business leads to an increase in profitability of the business and increase in earning per share for the shareholders & accordingly if a company wants to increase the wealth of their shareholders they should also focus on increasing the sales revenue.
  • Maximizing return on investment: Company should focus on efficient & effective utilization of funds of the investor so that it will able to maximize the return on investment which results in an increase in the wealth of the shareholders.
  • Maximizing profits: If a company having incurring loss it will not be able to provide the return to its shareholders and their value will be decreased. If company maximizes their profits then the company will be able to declare the dividend to shareholders & other benefits & hence it results in increasing wealth of shareholders, the company should be a focus on the profit margin, etc so that maximize the return of shareholders.

Accordingly, Option (c) i.e. maximizing the return on investment is correct as all are ancillary to increase the profitability of organisation so that company will able to best utilize the fund of shareholders in an effective & efficient manner. If a company wants to increase the wealth of shareholders it should focus on maximize the return on investment.

ekkarill92 answered 1 year ago
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