What is the difference between profit maximization and share value maximization?
ID: 2419270 • Letter: W
Question
What is the difference between profit maximization and share value maximization? What is equity? What is debt? How do they differ? What is common stock? What is preferred stock? What is bond? How do they differ? What is income statement? What arc the three types of expenses that must be shown in income statement? What arc the three types of profits that must be shown in income statement? What is balance sheet? What types of assets, liabilities and equity must be shown? Can you identify the firm's capital structure based on the balance sheet? What is the effect of using debt in capital structure? What is the balance sheet equation? What is return on equity? What is net profit margin? What is total asset turnover? What is equity multiplier? How to improve each of the above mentioned four ratios? What is single cash flow? How do you find the present value of a single cash flow? How do you find the future value of a single cash flow? What is an annuity? How do you find the present value of an annuity? How do you find the future value of an annuity? What identifies the cash flow of a bond? How do you determine the value or price of a bond? What is the relationship between bond price and interest rate? How do you determine the promised yield to maturity?Explanation / Answer
Difference between profit maixmisation and share value maximisation
The main objective of a concern is to earn a larger amount of profit. Profit can be calculated by deducting total cost from total revenue. Through profit maximization a firm can be able to ascertain the input-output levels, which gives the highest amount of profit. whereas the ultimate goal of the concern is to improve the market value of its shares. Wealth maximization is the ability of a company to increase the market value of its common stock over time. The market value of the firm is based on many factors like their goodwill, sales, services, quality of products
Profit Maximization avoids time value of money, but Wealth Maximization recognizes it.
Profit maximization is a short term objective of the firm while long term objective is Wealth Maximization.
2.
Equity shares are the ordinary shares of the company representing the part ownership of the shareholder in the company. whereas Debt are borrowings from outsiders and not owners of company.
Equity carry voting right in company but debt does have voting right
3.
Common stock are the ordinary shares of the company representing the part ownership of the shareholder in the company.
common stock cannot be converted into preferred stock. common stock carry voting rights. The dividend is paid after the payment of all liabilities.
Preferred stock are the shares that carry preferential rights on the matters of payment of dividend and repayment of capital. Priority in payment of dividend over equity shareholders.
Bonds means borrowing from outsiders. A bond is a contract that requires the borrower to pay the interest income to the lender
4. INCOME STATEMENT is an statement showing net profit/(loss) earned by entity during the period. it is part of financial reporting
three type of expense shown in income statement are
1. COGS
2. Operating expense
3. Non operating expense
Three type of profit shown in income statement are
1. Revenue
2. direct income
3. indirect income
5.
Balance sheet is an statement of financial position of entity. A balance sheet summarizes an organization assets, equity and liabilities at a specific point in time.
following are shown in balancesheet
Assets are of two type current and non current assets
Current assets are
Cash and cash equivalents
Accounts receivable
Non-current assets (Fixed assets)
Property, plant and equipment
Intangible assets
Financial assets Investments accounted for using the equity method
Liabilities are of two type = current liability and long term liability
current liability are
Accounts payable
Provisions
long term liability are = debenture/ bonds
Equity / Capital
The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the shareholders' equity. It comprises:
Issued capital and reserves attributable to equity holders
Non-controlling interest in equity
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