Question

The CEO of the company you are interning for states that her number one goal for the year is to maximize the company’s profit. Is that the same thing as maximizing shareholder value? Why or why not? Give an example of something the company could do that would lead to higher profits this year, but would actually harm shareholder value maximization in the long term.

Answer 1

Maximizing the Profits is more of growing the company’s Revenue or Sales manifold to have more net profit in the interest of Investors. Maximizing Profits revolve round the strategy or Objective of making more Profits mainly in the short run of the business and that the Shareholders do not hold onto to the Shares of the company for much longer. In most of the scenarios Shareholders of any Private of Public Corporation Investing in a company to have healthy share of profits over a short course of business Invest with a primary objective of Maximizing Profits, and can liquidate their share of Investment any time during the tenure of business. In contrast, Shareholders holding onto their Share of Investment in a Corporation with a primary aim to own and maximize the overall Wealth of the company overall the life of the business, with an objective of maximizing shareholders value. Nevertheless, to attract additional investment, a company must demonstrate not only a long-term business plan, but immediate short-term success. It is the main goal of a company not only to satisfy its shareholders, but also other stakeholders. According to this view, a company has a fundamental duty to the larger community that made its existence possible. The difference between value maximization and profit maximization is a main concern of publicly traded companies.
A company can come up with many strategies over a short period of time with a primary aim to maximize Profits which may or may not help or can harm the Shareholders value maximization in long run:
-   Stock Splits to attract more Investors, when the company actually is not doing good with its products or services in the market.
-   Announcement or Publication of Business Expansion plans to the General Public to expect the company stock price rise.
-   Merging with or Acquiring Economically & Financially Sick Units to attract more Investors for new business.
-   Fluctuating the Prices of Products or services un-competitively with a primary objective of increasing sales and hence maximizing Profits.
-   Changes or reshuffling the Management for new roles & responsibilities.
-   Premature Liquidation of the Long term Assets/Investment to enhance Branding and Marketing of the Products or Services.