The Main Objective of Finance is Wealth Maximization

Profit maximization was the main goal of business in the early nineteenth century. The concept of profiteering raises several problems. such as Risk and time value of money not considered, tax evasion, labor exploitation black market, etc. To overcome this problem, the main goal of the organization is to maximize profits for the benefit of owners, workers, and employees. Reasons why wealth acquisition is a goal or objective are discussed below:


1. Conceptual Clarity of Assets: Assets refer to shareholders' wealth. Profit through the acquisition of assets Eliminates conceptual ambiguity. It explains the actual status of the asset and the measurement method.

2. Consider the time value of money: The value of money changes over time. 1 USD today is not equal to 1 USD tomorrow. Differences in the amount of money can be seen over time. The present value is determined by discounting all the money related to investment in wealth maximization at a fixed rate.

3. Emphasis on share price:
The main objective of financial management is to provide financial development or solvency to the owners. Financial growth is possible through increasing investor value and is measurable by the share price.

4. Risk Adjustment: 
The objective of the organization is to maximize wealth. In this case, the increase in value in the stock market is correlated with the net present value of the investment. The risk is higher in the project where the profit is higher. Risky projects should be avoided. The aim of wealth maximization is regular and assured income i.e. funds are invested in low-risk projects.

5. Cash Flow Considerations: 
The "wealth maximization" objective is based on cash flow. On the other hand, the concept of "profit maximization" is based on the profit from the books of account. The concept of profit is ambiguous. But cash flow has a precise definition.

6. Dividend Policy:
Profit maximization is concerned with the financial growth of shareholders. A rational dividend policy is formulated based on wealth maximization. Proper, dividend policy increases the share value of shareholders.

7. Market Expansion: 
The objective of 'profit maximization' is to earn profit by selling only. As a result, the market is not expanded without considering the advantages and disadvantages of the buyers. On the other hand, new products are released in the market according to the demand for the product to maximize finding the product market.