Wealth maximization

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.
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