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    20 - Segismundo - Gilead - Exercise #1

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    Maria Isabella
    While profits impact stock prices, the overall goal of management should be maximizing shareholder wealth rather than profit maximization. Maximizing shareholder wealth encompasses running a business that considers all stakeholders and the risks of management decisions. Closely held firms may find shareholder wealth maximization more difficult, but remaining informed of stock price influences prepares management for potential future stock listings. Maximizing long-term stock price through quality products, competitive costs, innovation and efficiency best satisfies all stakeholders in a sustainable way.

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    20 - Segismundo - Gilead - Exercise #1

    Uploaded by

    Maria Isabella
    87 views1 page
    While profits impact stock prices, the overall goal of management should be maximizing shareholder wealth rather than profit maximization. Maximizing shareholder wealth encompasses running a business that considers all stakeholders and the risks of management decisions. Closely held firms may find shareholder wealth maximization more difficult, but remaining informed of stock price influences prepares management for potential future stock listings. Maximizing long-term stock price through quality products, competitive costs, innovation and efficiency best satisfies all stakeholders in a sustainable way.

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    20_Segismundo_Gilead_Exercise #1

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    While profits impact stock prices, the overall goal of management should be maximizing shareholder wealth rather than profit maximization. Maximizing shareholder wealth encompasses running a business that considers all stakeholders and the risks of management decisions. Closely held firms may find shareholder wealth maximization more difficult, but remaining informed of stock price influences prepares management for potential future stock listings. Maximizing long-term stock price through quality products, competitive costs, innovation and efficiency best satisfies all stakeholders in a sustainable way.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    87 views1 page

    20 - Segismundo - Gilead - Exercise #1

    Uploaded by

    Maria Isabella
    While profits impact stock prices, the overall goal of management should be maximizing shareholder wealth rather than profit maximization. Maximizing shareholder wealth encompasses running a business that considers all stakeholders and the risks of management decisions. Closely held firms may find shareholder wealth maximization more difficult, but remaining informed of stock price influences prepares management for potential future stock listings. Maximizing long-term stock price through quality products, competitive costs, innovation and efficiency best satisfies all stakeholders in a sustainable way.

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    of 1

    20

    Segismundo, Ma. Isabella


    12 Gilead Apolaki
    Week 1 Exercise #1

    1. Does profit maximization always lead to shareholders’ wealth maximization? Explain your answer:
    While profits have a substantial impact on stock prices, finance literature suggests that the overall
    goal of a company's management should be to maximize shareholder wealth rather than profit maximization.
    Profits can be increased by taking additional risks, such as borrowing more money to fund expansion and
    increase revenue. While increased borrowings can boost profits, they can also expose the company to more
    risks and potentially result in operating losses if external shocks occur and negatively impact the company's
    operations. When evaluating a stock, investors take this risk into account.

    The risk-return trade-off of management decisions and a company's prospects are included into
    shareholder wealth maximization. Because there is no market price for the stock to look at, the notions of
    shareholder wealth maximization may be more difficult to apply in closely held firms. However, because new
    investors may join the company or the controlling stockholders may opt to list the shares on the Philippine
    Stock Exchange in the future, the management should remain informed of the aspects that influence the stock
    price. When these chances arise, the elements that are thought to be important in properly evaluating a
    company will be used.

    The overall goal of management should be to maximize shareholder wealth through stock price
    maximization because it encompasses all aspects of running a business and takes into account all
    stakeholders. Stakeholders are not restricted to the company's stockholders. Management, employees,
    suppliers, customers, creditors, regulatory agencies, and the community in which the company operates are all
    stakeholders. The interests of these various stakeholders must be considered for a more independent and
    sustainable operation.

    Members of top management are motivated to build a longer perspective for the company they run by
    the desire to maximize shareholder wealth. With this goal in mind, management will strive to satisfy customers
    by offering high-quality products and services at competitive costs. To do this, management may need to
    innovate, invest in technology, and improve their production and operation efficiency. Management may also
    want to consider allocating a portion of profits to research and development in order to improve and maybe
    grow the company's current product and service offerings.

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