What is the rational for wealth maximization as a goal for a firm? What are the
ID: 2730494 • Letter: W
Question
- What is the rational for wealth maximization as a goal for a firm?
- What are the key financial statements and why they are important?
- What is the purpose of ratio analysis?
- What is the concept of time value of money?
- Why understanding of time value of money is important?
- What is the rational for wealth maximization as a goal for a firm?
- What are the key financial statements and why they are important?
- What is the purpose of ratio analysis?
- What is the concept of time value of money?
- Why understanding of time value of money is important?
Explanation / Answer
The rationale for wealth maximisation as a goal for a firm is that the financial investment decision is made based on business revenues for a long period of time. It considers risk factors which would help to minimise erors in the business on a long term basis. It involves the flow of cash and risk in order to take decisions in increasing the wealth of the owner.
The key financial statements are as follows:
The purpose of ratio analysis is that it conducts proper analysis of financial statements. The financial institutes, banks, etc are able to make decision based on the financial situation of the company. The efficiency of the company works upon the management and operations shown by profits and assets earned by the same. The performance of the company is evaluated and compared for the past years and present time period.
The concept of time value of money is defined as the evaluation of the worth of money at the present to be similar or more than that in the future peiod of time. It is also known as present discounted value and shows that the interest is earned for the money deposited for a fixed period of time.
The understanding of time value of money is important because it helps in evaluating the present value of cash flow. It also evaluates the value of the asset taking place in future. It works in conducting capital budgeting, stock valuation, etc. It shows future value by evaluating the funds received about the investment made in present time period for future.
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