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    Profit Maximization Vs Value Maximization

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    Nicklas Garștea
    This document discusses the differences between profit maximization and value maximization as financial objectives for companies. Profit maximization is a short-term goal focused on immediate growth but ignores future risk, while value maximization is long-term and aims to increase market share and stock value over time through quality products, services, and growth. While profit maximization can address short-term needs like avoiding debt, value maximization provides more stability and economic attraction. Ultimately, the best choice depends on the situation, but value maximization should be prioritized for decisions affecting shareholders as it considers long-term profit and returns.

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    Profit Maximization Vs Value Maximization

    Uploaded by

    Nicklas Garștea
    5K views2 pages
    This document discusses the differences between profit maximization and value maximization as financial objectives for companies. Profit maximization is a short-term goal focused on immediate growth but ignores future risk, while value maximization is long-term and aims to increase market share and stock value over time through quality products, services, and growth. While profit maximization can address short-term needs like avoiding debt, value maximization provides more stability and economic attraction. Ultimately, the best choice depends on the situation, but value maximization should be prioritized for decisions affecting shareholders as it considers long-term profit and returns.

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    Profit Maximization vs Value Maximization

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    Profit Maximization vs Value Maximization

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    This document discusses the differences between profit maximization and value maximization as financial objectives for companies. Profit maximization is a short-term goal focused on immediate growth but ignores future risk, while value maximization is long-term and aims to increase market share and stock value over time through quality products, services, and growth. While profit maximization can address short-term needs like avoiding debt, value maximization provides more stability and economic attraction. Ultimately, the best choice depends on the situation, but value maximization should be prioritized for decisions affecting shareholders as it considers long-term profit and returns.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    5K views2 pages

    Profit Maximization Vs Value Maximization

    Uploaded by

    Nicklas Garștea
    This document discusses the differences between profit maximization and value maximization as financial objectives for companies. Profit maximization is a short-term goal focused on immediate growth but ignores future risk, while value maximization is long-term and aims to increase market share and stock value over time through quality products, services, and growth. While profit maximization can address short-term needs like avoiding debt, value maximization provides more stability and economic attraction. Ultimately, the best choice depends on the situation, but value maximization should be prioritized for decisions affecting shareholders as it considers long-term profit and returns.

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    Profit maximization vs Value maximization

    An economic organization defines its financial objectives by the


    possibilities and growing potential they can reach. Financial
    management is responsible for setting these goals and achieving them.
    There are two main aims every company aspires to achieve:
    maximization of profit or value. It is a huge difference between these
    two types of maximizations, due to the factors and effects involved.
    First, Profit maximization is a short-term (SR) objective that
    assures the growth of the capital, but it neglects risk and uncertainty
    the company can pass-through in the future. Profit maximization gives
    an immediate result, and, in different situations, it can save the firm
    from debts, problems and financial crisis. It is a well-known fact that the
    highest amount of profit is obtained when MC=MR. This means that a
    firm does everything to reduce production costs, increase sales volume,
    and set an optimal price-level for achieving these steps.
    Second, Value maximization is a long-term (LR) objective that
    undertakes safe actions in order to increase the market value of its
    common stock over time. The market value of the firm is based on
    many factors, like their sales, services, quality of products, profit.
    Wealth maximization considers both risk and uncertainty. These mean
    that long-term goals recognize time value of money, accelerating the
    growth rate of the enterprise and aiming to attain maximum market
    share of the economy. Moreover, Value maximization is highly
    recommended criterion in evaluating the performance of a business
    organization. This will help the firm to increase their share in the
    market, attain leadership, maintain consumer satisfaction. Shareholders
    are more interested in value maximization because of the stability it
    brings, economic attraction, constant profit based on dividends.
    In Conclusion, I can say that these two financial objectives bring
    different results; therefore, using one of them depends on situation. In
    my humble opinion Wealth maximization, being a long-run goal,
    involves the profit increasing processes, moreover, an attractive
    organization with a high market value cannot accept a low profit level.
    Profit is the basic requirement of any entity, otherwise, it will lose its
    capital and cannot be able to survive in the long run. Shareholders are
    investing their money in the company with the hope of getting good
    returns and if they see that nothing is done to increase their wealth,
    they will invest somewhere else. Profit Maximization can be taken into
    consideration as a quick, short-run decision, but when it comes to
    decisions that will directly affect the interest of the shareholders, then
    Wealth Maximization should be exclusively considered.

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