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.
