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Question
How is shareholders' wealth maximisation linked with the market price of the shares of the company?
How is shareholders' wealth maximisation linked with the market price of the shares of the company?
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Solution
The primary and foremost objective of financial management is to maximise the wealth of equity shareholders.
The financial decision taken will determine how the funds are invested.
The return earned on investment will determine the value and price of the shares.
The market price of the shares will increase if the benefits of the decision have exceeded the costs.
Secondly, the objective of increase in the value of equity shares automatically fulfils many other objectives like increasing the profitability, maintaining liquidity, effective utilisation of funds and providing for growth of the company.
The primary and foremost objective of financial management is to maximise the wealth of equity shareholders.
The financial decision taken will determine how the funds are invested.
The return earned on investment will determine the value and price of the shares.
The market price of the shares will increase if the benefits of the decision have exceeded the costs.
Secondly, the objective of increase in the value of equity shares automatically fulfils many other objectives like increasing the profitability, maintaining liquidity, effective utilisation of funds and providing for growth of the company.
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