Wow, so many questions in just one post.
Originally Posted by
chart45096
What is the difference between shareholder wealth maximization and profit maximization?
Shareholder wealth is the market value of the firm's common stock. Shareholder wealth is calculated as the number of common shares outstanding times the market price per share (the price at which the firm's common stock trades for in the marketplace such as the New York Stock Exchange).
Profit maximization typically is defined as a more static concept than shareholder wealth maximization. The profit maximization objective does not normally consider the time dimension or the risk dimension in the measurement of profits. Additionally, the definition of profit is ambiguous and subject to accounting manipulation. In contrast, the shareholder wealth maximization objective provides a convenient framework for evaluating both the timing and the risks associated with various investment and financing strategies and relies on cash flows as a measure of returns
Originally Posted by
chart45096
Can a company achieve both at the same time?
Yes.
Consider why shareholder wealth is a preferred objective to profit maximization. The goal of shareholder wealth maximization is a long-term goal. Shareholder wealth is a function of all the future returns to the shareholders. Hence, in making decisions that maximize shareholder wealth, management must consider the long-run impact on the firm and not just focus on short-run (i.e. current period) effects. For example, a firm could increase short-run earnings and dividends by eliminating all research and development expenditures. However, this decision would reduce long-run earnings and dividends, and hence shareholder wealth, because the firm would be unable to develop new products to produce and sell.
Originally Posted by
chart45096
Can a company still be successful in the long term with one and not the other?
Yes.
Originally Posted by
chart45096
Do you know of any companies that use both?
Not off the top of my head.