Wealth Maximization is a concept that tends to increase the long term net profit of a business, while decreasing the risk of harm or loss. It is maximizing the invested funds of the shareholders where their objective is to achieve highest market value of the common stock. It emphasizes the long term result unlike the profit maximization which only focuses on the short term increase of the net profit. It considers the value of money. The funds that the shareholders invested must bring back as is or more than their net goal.
The best example of the wealth maximization is increasing the price of the products. If you're selling a certain product and it clicks on consumer's taste or wants and need there will be a tendency that you're going to increase the price. By increasing the price of the product your net profit will also increase. In increasing the price you must consider the quality of the product. So that your costumers will still buy your product even the price increased. Another example is you reduce the amount of the product. As you noticed on some products at the grocery stores, the products became smaller or lesser but still have the same price. But because the consumers needed the product that you are selling they will still buy products from you. As the stock price goes up or if you lessen the amount of the product, the value of the firm increases and the net worth of the individual who owns the stock also increases.
To maintain the balance in the business and reduce the risk of loss if your products are near to its limit or expiration you can have a promo or discount. BUT!!! the price must not be lower than the capital. You must always have a profit. Wealth maximization take the concepts of risk and reward. The goal of it is at best, a long term goal of financial management.
