Profit maximization and wealth maximization are

Acts as a yardstick for computing the operational efficiency of the entity.

Profit maximization and wealth maximization are

The price of the Model TFord's mainstay product, had been successively cut over the years while the wages of the workers had dramatically, and quite publicly, increased.

The company's president and majority stockholder, Henry Ford, sought to end special dividends for shareholders in favor of massive investments in new plants that would enable Ford to dramatically increase production, and the number of people employed at his plants, while continuing to cut the costs and prices of his cars.

In public defense of this strategy, Ford declared: My ambition is to employ still more men, to spread the benefits of this industrial system to the greatest possible number, to help them build up their lives and their homes. To do this we are putting the greatest share of our profits back in the business.

While Ford may have believed that such a strategy might be in the long-term benefit of the company, he told his fellow shareholders that the value of this strategy to them was not a main consideration in his plans.

The minority shareholders objected to this strategy, demanding that Ford stop reducing his prices when they could barely fill orders for cars and to continue to pay out special dividends from the capital surplus in lieu of his proposed plant investments.

Profit maximization and wealth maximization are

The Court was called upon to decide whether the minority shareholders could prevent Ford from operating the company for the charitable ends that he had declared. Judgment[ edit ] The Michigan Supreme Court held that Henry Ford could not lower consumer prices and raise employee salaries.

Notably, obiter dicta in the opinion written by Russell C. Ostrander argued that the profits to the stockholders should be the primary concern for the company directors. Because this company was in business for profit, Ford could not turn it into a charity.

This was compared to a spoliation of the company's assets.

Think on the Margin: Maximizing Life One Choice at a Time |

It said the following: A business corporation is organized and carried on primarily for the profit of the stockholders. The powers of the directors are to be employed for that end. The discretion of directors is to be exercised in the choice of means to attain that end, and does not extend to a change in the end itself, to the reduction of profits, or to the non-distribution of profits among stockholders in order to devote them to other purposes Shareholder value and Squeeze out As a direct result of this decision, Henry Ford threatened to set up a competing manufacturer as a way to finally compel his adversaries to sell back their shares to him.

Subsequently, the money that the Dodge brothers received from the case would be used to expand the Dodge Brothers Company. Ford was also motivated by a desire to squeeze out his minority shareholders, especially the Dodge brothers, whom he suspected correctly of using their Ford dividends to build a rival car company.

By cutting off their dividends, Ford hoped to starve the Dodges of capital to fuel their growth. Ford was denied the ability to arbitrarily undermine the profitability of the firm, and thereby eliminate future dividends. Under the upheld business judgment rule, however, Ford was given considerable leeway via control of his board about what investments he could make.

That left him with considerable influence over dividends, but not complete control as he wished. This case is frequently cited as support for the idea that corporate law requires boards of directors to maximize shareholder wealth.

However, one view is that this interpretation has not represented the law in most states for some time. Among non-experts, conventional wisdom holds that corporate law requires boards of directors to maximize shareholder wealth.

This common but mistaken belief is almost invariably supported by reference to the Michigan Supreme Court's opinion in Dodge v. This was not and is not the law. Shareholder wealth maximization is a standard of conduct for officers and directors, not a legal mandate.

The business judgment rule [which was also upheld in this decision] protects many decisions that deviate from this standard.

This is one reading of Dodge. If this is all the case is about, however, it isn't that interesting. Todd Henderson [6] However, others, while agreeing that the case did not invent the idea of shareholder wealth maximization, found that it was an accurate statement of the law, in that "corporate officers and directors have a duty to manage the corporation for the purpose of maximizing profits for the benefit of shareholders" is a default legal rule, and that the reason that "Dodge v.

Profit maximization and wealth maximization are

Ford is a rule that is hardly ever enforced by courts" is not that it represents bad case law, but because the business judgement rule means: The rule is aspirational, except in odd cases.International Journal of Scientific and Research Publications, Volume 5, Issue 2, February 3 ISSN 2.

Being able to overcome the problems that arise when there is a problem removal variables. Oct 14,  · "Learning about risk from an academic is like learning about flying from an airport ice cream vendor.” Nassim Nicolo Taleb.

Milton Friedman’s book, Capitalism and Freedom (), is a. Profit vs Wealth Maximization is a common but crucial question. The ultimate goal of financial management is to maximize the wealth of its shareholders.

The "shareholder value" obsession has warped our economy. PROFIT MAXIMIZATION. Profit Maximization is the traditional approach, in this process Companies undergo to Determine the best Output and price levels in order to maximize its return. k. The Securities and Exchange Commission (SEC) requires that all publicly traded companies file a Form k every year.

The filing date, ranging from 60 to 90 days after the end of a company's fiscal year, depends on the value of the publicly held shares.

What is maximization? definition and meaning -