According to Ezra Solomon,” Wealth maximization provides an unambiguous measure or what financial management should seek to maximize, in making investment and financing decisions.”
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.”
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.