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BRILLIANT’S Conceptual Framework of Finance Functions 23

2. Wealth-Maximization 2. d¡ëW _¡[ŠO_mBOoeZ
It is also known as value maximization or Bgo d¡ë`y _¡[ŠO_mBOoeZ `m ewÕ dV©_mZ _yë` H$mo
net present worth maximization. The objec- A{YH$V_ H$aZo H$s AdYmaUm ^r H$hm OmVm h¡Ÿ& d¡ëW
tive of wealth maximization is treated as an
appropriate criterion to select among the al- _¡pŠO_mBOoeZ H$m CÔoí` d¡H$pënH$ J{V{d{Y`m| _| go C{MV
ternative actions. _mnXÊS> H$m M`Z H$aZm h¡Ÿ&
Wealth maximization means maximizing d¡ëW _¡pŠµO_mBOoeZ H$m AW© h¡ ZoQ> àoOoÝQ> d¡ë`y `m
net present value or wealth. If the net present d¡ëW H$mo _¡ŠµOr_mBµO H$aZmŸ& `{X ZoQ> àoOoÝQ> d¡ë`y nm°Or{Q>d
value is positive, it creates wealth. If it is nega- h¡ Vmo dh d¡ëW _| d¥{Õ H$aoJm Am¡a `{X dh {ZJo{Q>d h¡ Vmo
tive, it should be rejected. In case of wealth
maximization concept, the quality of profit is Bgo {aOoŠQ> H$aZm Mm{hEŸ& doëW _¡[ŠO_mBOoeZ H$s AdYmaUm
also focused along with quantity. The wealth _| cm^ H$s _mÌm Ho$ gmW-gmW CgH$s JwUdÎmm na ^r
maximization criterion is based on the con- Ü`mZ {X`m OmVm h¡Ÿ& d¡ëW _¡pŠO_mBOoeZ _mnXÊS> H¡$e
cept of cash flow. Secondly, wealth maximiza- âcmo H$s AdYmaUm na AmYm[aV h¡Ÿ& `h dh _mnXÊS> h¡,
tion criterion is that which considers both the
quantity and quality dimensions of benefits. It Omo cm^ Ho$ XmoZm| _mn Šdm{cQ>r Ed§ Šdm§{Q>Q>r na Ü`mZ XoVm
is the flow of cash, which is important, not the h¡Ÿ& `hm§ H¡$e H$m âcmo A{YH$ _hËdnyU© h¡, ~Om`
accounting profits. AH$mCqQ>J àm°{\$Q> Ho$ &
The wealth maximization objective is help- d¡ëW _¡[ŠO_mBOoeZ H$s AdYmaUm A{YH$V_ Am{W©H$
ful in achieving maximum economic welfare. If H$ë`mU Ho$ CÔoí` H$mo àmßV H$aZo _| ghm`H$ h¡Ÿ& d¡ëW ~‹T>Zo
the wealth is maximized, owner can adjust their na {~OZog H$m ñdm_r CgHo$ AZwHy$bV_ Cn`moJ Ho$ {b`o
cash flows to optimise their consumption. Again,
if wealth is maximized, the market value of H¡$e âbmo H$mo ES>OñQ> H$a boVm h¡Ÿ& O~ d¡ëW ~‹T>Vr h¡ Vmo
share will increase. The market value of shares eo`a H$s _mH}$Q> d¡ë`y ^r ñdV: hr ~‹T>Vr h¡& eo`a H$s _mH}$Q>
is an indicator of firm's performance. d¡ë`y {H$gr {~OZog AWdm H$ånZr H$s àJ{V H$mo Xem©Vr h¡Ÿ&
The financial manager must know the fac- EH$ \$m`ZopÝe`c _¡ZoOa H$mo `h kmV hmoZm AË`§V
tors which affect the market price of shares. In Amdí`H$ h¡ {H$ do H$m¡Z-H$m¡Z go VËd h¢ Omo eo`g© Ho$ _mH}$Q>
practice, a lot of factors will affect the price of d¡ë`y H$mo à^m{dV H$aVo h¢Ÿ& ì`mdhm[aH$ OrdZ _| Eogo H$B© {~ÝXw
a particular share. For the financial manager, h¢ {OZgo eo`a H$s _mH}$Q> d¡ë`y à^m{dV hmoVr h¡Ÿ& \$m`ZopÝe`c
it is a crucial question-how much should be
the worth of a particular share. Apart from _¡ZoOa Ho$ {c`o CZ {~ÝXwAm| H$mo OmZZm ~ohX Amdí`H$ h¡Ÿ&
maximizing owner's wealth, the financial man- d¡ëW _¡[ŠO_mBOoeZ Ho$ gmW-gmW AZmdí`H$ [añH$ H$mo
ager should also avoid unnecessary risk. {Z`§{ÌV H$aZm ^r \$m`ZopÝe`c _¡ZoOa H$m Xm{`Ëd h¡Ÿ&

What should be selected-Profit Maxi- àm°{\$Q> _¡[ŠO_mBOoeZ d d¡ëW _¡[ŠO_mBOoeZ
mization or Wealth Maximization? _| go {H$go MwZm Om`o?

There is an interesting controversy about \$m`ZopÝe`c _¡ZoOa H$m cú` Š`m hmoZm Mm{h`o?
the goal of financial management - should it be àm°{\$Q> _¡[ŠO_mBOoeZ `m doëW _¡[ŠO_mBOoeZ- Bg gå~ÝY
profit maximization or wealth maximization?
The goal of profit maximization is objected due _| {damoYm^mg h¡Ÿ& àm°{\$Q> _¡pŠO_mBOoeZ H$s AdYmaUm H$m
to following reasons: {damoY H$aZo Ho$ nrN>o {ZåZ{c{IV VH©$ `m H$maU h¢: