Wealth maximization decision criterion:
This is also known as value maximization or net present worth maximization. The focus of financial management is on the value to the owners or suppliers of equity capital. The wealth of the owners is reflected in the market value of the shares. So wealth maximization implies the maximization of the market price of the shares.
It has been universally accepted as an appropriate operational decision as it removes the technical limitations, which characterize the earlier profit maximization criterion. Its operational features satisfy all three requirements of a suitable operational objective of financial course of action namely exactness, quality of benefits and the time value of money. Maximization of the wealth of shareholders (as reflected in the market value of equity) appears to be the most appropriate goal for financial decision-making.
This is also known as value maximization or net present worth maximization. The focus of financial management is on the value to the owners or suppliers of equity capital. The wealth of the owners is reflected in the market value of the shares. So wealth maximization implies the maximization of the market price of the shares.
It has been universally accepted as an appropriate operational decision as it removes the technical limitations, which characterize the earlier profit maximization criterion. Its operational features satisfy all three requirements of a suitable operational objective of financial course of action namely exactness, quality of benefits and the time value of money. Maximization of the wealth of shareholders (as reflected in the market value of equity) appears to be the most appropriate goal for financial decision-making.