What is wealth?
Wealth is the abundance of valuable resources or material possessions. It can also refer to the abundance of assets that can be converted into cash or used to generate income. In general, wealth is associated with having a high standard of living and access to a wide range of material goods and financial resources.
Wealth maximization vs profit maximization
The distinction between wealth maximization and profit maximization lies in their focus. While profit maximization focuses on current profits, wealth maximization evaluates what will benefit the company in the long term by looking at capital gains and the market value of equity. Wealth maximization ensures that the future of a company is taken care of by wisely investing to achieve growth and profitability for the future, whereas profits are short-term gains intended to maximize in the present. Any business needs to consider both aspects when making decisions since each has its importance.
Why wealth maximization is superior to profit maximization?
Wealth maximization is an effective business strategy that puts shareholders at the forefront of decision-making. It stands in contrast to profit maximization, which focuses on increasing profits without taking into account long-term investments or other strategic considerations. By prioritizing wealth maximization over profit maximization, firms can make decisions that benefit their shareholders in the most comprehensive ways.