INTERVIEW QUESTIONS COMMERCE CS DETAILS

Question: Is there a difference between corporate profit maximization and maximization of shareholder wealth?

Answer: Sure, profit maximization relates to profits *only* while shareholder wealth also involves total company equity, debt ratios and any of 15 other financial performance measure ratios. Management could focus on profit maximization over a longer period of time, say, 40 years (Toyota), while the shareholder would rather see stock values and corporate total value increase immediately (get in and get out) (90% of American manufacturers). Ifmanagement focused on short-term profit maximization, say at the expense of long-term sales revenues, then shareholder wealth (stock price) could actually decrease because of the loss of market share.

Sure, profit maximization relates to profits *only* while shareholder wealth also involves total company equity, debt ratios and any of 15 other financial performance measure ratios. Management could focus on profit maximization over a longer period of time, say, 40 years (Toyota), while the shareholder would rather see stock values and corporate total value increase immediately (get in and get out) (90% of American manufacturers). Ifmanagement focused on short-term profit maximization, say at the expense of long-term sales revenues, then shareholder wealth (stock price) could actually decrease because of the loss of market share.
Source: CoolInterview.com

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