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Financial Management - Profit and Wealth Maximization

Financial management is how a company handles its finances. Different decisions of a company are made with proper financial management especially on investments to be made, finances, and company dividends. The purpose of good financial management can be narrowed down to two and they are:

  1. Profit maximization
  2. Wealth maximization

Profit maximization in theory is done to be able to make the best possible economic decisions. In profit maximization, profit is taken as an economic concept and it is defined through the many aspects of the decision to achieve economic proficiency. The executives of a company have the power to decide on the direction taken for managing their finances. The value stocks of a company can be a determining factor to find out the richness of its owner. This fact can be used to explain that wealth maximization is done through maximizing the value of a company’s stock. In essence, the maximization of share value is used as a substitute for the value/wealth/net present value of the direction the company is taking.

Basically, profit maximization is the direction a company takes in terms of how the company earns profit. It won’t apply if you look at it in the view from the inside from the successful company that employs the best strategies. Even though we are given this condition we can still say that wealth is maximized through financial management. Fundamentally, we can define this as a way to maximize value and increase the net present worth of a company. The different dimensions of a company’s benefits in terms of quantity and quality are taken into account to go hand in hand with the value of money

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