Comment on the following: Profit maximization is the sole objective of Financial Management.

Profit maximisation is considered as an important goal in financial decision-making in an organisation. It ensures that firm utilizes its available resources most efficiently under conditions of competitive markets. But in recent years, under the changed corporate environment, profit maximisation is regarded as unrealistic, difficult, inappropriate and socially not much preferred goal for business organisation. It is mainly criticized because its emphasis is generally on short run projects and it ignores risk factor. Further it may cause decreasing share prices in the long run. Shareholder wealth maximization on the other hand is more preferred objective as it focuses on maximization of present value (or wealth) of an enterprise. Wealth maximization is preferred for the following reasons: it is consistent with the object of maximising owners economic welfare, It focuses on the long run picture and considers risk, It takes into account time value of money and helps in avoiding volatility in the market price of shares. The wealth maximization strategy takes into consideration the timing and uncertainty and managers are willing to give up short-term profits for long term value of the firm.