ACF Presentation Shareholders Wealth Maximization

Done By, Shray Verma (BBA) Roll No. 27

It is an approach to financial management of profit used to be the main aim of business and financial management till the concept of wealth management came into being. Its a superior goal compared to profit maximization as it takes broader area into consideration. Wealth on value of a business is defined as the market price of the capital invested by shareholder.

In General Sense

It is formed by 2 words
Wealth Maximization

Its to maximization of the net worth of the company. When the market price increases, It also increase in the share price cause the fluctuation in the net worth causing the SWM.

How to Calculate Wealth ?

Wealth Present Value of the Inflow Cost Present Value of the Inflow

Traditional and Modern Approach Wealth Maximization

The traditional approach of financial management was all about profit maximization. The main objective of companies was to make profits. The traditional approach of financial management had many limitations: 1.Business may have several other objectives other than profit maximization. Companies may have goals like: a larger market share, high sales, greater stability and so on. The traditional approach did not take into account so many of these other

2.Profit Maximization has to defined after taking into account many things like: a. Short term, mid term, and long term profits b. Profits over period of time The traditional approach ignored these important points.
3.Social Responsibility is one of the most important objectives of many firms. Big corporate make an effort towards giving back something to the society. The big companies use a certain amount of the profits for social causes. It seems that the traditional approach did not consider this point.

Modern Approach is about the idea of wealth maximization. This involves increasing the Earning per share of the shareholders and to maximize the net present worth. Wealth is equal to the difference between gross present worth of some decision or course of action and the investment required to achieve the expected benefits. Gross present worth involves the capitalised value of the expected benefits. This value is discounted a some rate, this rate depends on the certainty or uncertainty factor of the expected benefits. The Wealth Maximization approach is concerned with the amount of cash flow generated by a course of action rather than the profits. Any course of action that has net present worth above zero or in other words, creates wealth

In Short,

Shareholders wealth is defined as the present value of the expected futures return to the owner (shareholder)of the firm. It is mainly objective provide a commented framework for both the time and risk associated with various investment and financing objectives and strategies Wealth & Profit maximization go hand in hand and are mostly interrelated to each other. One component is depended

Thank You.
Done By, Shray Verma. Roll No. 27