I was wondering if anyone could assist me in clarifying the difference between stock price maximizing and profit maximizing? Thank-You!

walt17

Sis,
We may not be using the terms the same but here is my take on your question.
Stock price maximizing = percentage increase in the price of a stock.
Profit maximizing = percentage increase in the amount invested. Which would be stock price increase minus the cost of investing.
Profit maximizing should be the goal. So you would try to reduce the cost of investing: trading costs and fees.

Hope this helps,
Walter

ssitikorn

Sis,
Before going to answer your problem. I need to distinguish the difference between the stock price and profit in terms of timing difference. Stock price incorporates every facet of what investor expect to see from his investment agent i.e. future investment opportunty, any incurred business constraints, government regulations to effect company's value, etc while profit focuses on what is realized explicitly from invested money which is shown in income statement. Logically, this two stuff is different in light of pre-post rationale.

Thus, stock price movement is strongly relied on market expectation on that stock. Any relevant incident either to boost up or dampen the value of company will be well-calulated and reflexed into the price. To maximize stock price, that company need to create a viable business to ensure the stability of future cash flows, any revenue enhancements and cost reductions will create value given that action will not negatively affect future cash flows.
The cost reduction that won't or potentially undermine value is the reduction of project investments, innovations and risk management because those action will increase risk and lessen competitiveness.
To maximize profit, the company can do it by maximizing revenue and minimized both operational cost and financial cost. Some measures to spur sales are extending the flavorable term of payment to customers (this will increase the accounts receivable), sales promotions, etc. while operational and financial cost reduction can be achieved by sophisicate capital budgeting and opimal cost of capital.

natta

thank you very much. your answers is very useful.