Shareholder Equity Case Study

Profit Maximization and Maximization of Shareholder Equity

Research and discuss the topics of profit maximization and maximization of shareholder equity.

1. Compare and Contrast the goals of profit maximization and maximization of shareholder equity.

When discussing profit maximization and maximization of shareholder equity (i.e. wealth) we must take into account that shareholder equity is responsible for all of the difficulties of the environment. To whereas, profit maximization does not, in other words the profit maximization deals with revenues, it is a measure of business operations. On the other hand shareholder equity deals with or is responsible for the value maximization and the net present worth, therefore, its goal is to provide

What do these terms mean to the financial aspect of a firm?

In finance we discover that all decision making involves some type of risk (i.e. risk-return tradeoff). Therefore, the higher the risk the higher the return, with that being said if there is less than normal inventory held, there is a higher expected rate of return for that firm and if they run out of inventory then the firm is a greater risk. For instance, if one manager decides to accept the risk given, and an averse manager will refuse to be in that position as far as accepting that risk; because they feel that it’s too risky, this is the difference on each manager view or understand the risk-return tradeoff.

3. Are these two terms in conflict or congruence with each other? Why , or why not? Give examples.

In my opinion and from reading the text, my belief is that yes, both profit maximization and shareholder equity (i.e. wealth) are congruent with each other. The reason behind my choice is the fact that both parts are part of a host of other sectors of a firms’ capital structure that is responsible for both growth and profit of the firm. Therefore, if the shareholders are accumulating a profit, this means they (i.e. profit maximization and shareholder equity) are