Definition (1):
According to Ezra Solomon,” Wealth maximization provides an unambiguous measure or what financial management should seek to maximize, in making investment and financing decisions.”
Definition (2):
According to I.M. Pandey,” Shareholders wealth maximization means maximization of the net present value of a course of action to shareholders. The net present value of a course of action is the difference between the present value of its benefits and the present value of its costs.”
Definition (3):
It is the concept of maximizing a business’s value to maximize the shares’ value held by the stockholders. This concept needs the management of a company to always look for the highest probable returns on invested funds in the business, and minimizing any related risk of loss. It requires a complete analysis of the cash flows related to every prospective investment, and all-time attention to the organization’s strategic direction.
Mentionable features of the wealth maximization concept are as follows:
- This concept is universal because it protects the interest of owners, employees, financial institutions, and society as a whole.
- It guides the management in structuring the strong consistent dividend policy to give maximum returns to the holders of equity.
- The objective of wealth maximization serves the shareholders’ interest as well as ensures the lenders’ security.