Social Wealth

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The shareholders of a company form a part of the society. Their investments in the company form a large part of social wealth. As the society provides finance to a company, the goal of Financial Management is to maximise the present wealth of the owners i.e. equity shareholders in a company. It is defined as value maximisation. The wealth of the shareholders is represented in the market value of equity shares. The market price of a share serves as an index of the performance of the company. It indicates how well management is doing on behalf of stockholders. The factors that bear upon the market price of stock are the present and prospective future earnings per share, the timing and the risk of these earnings, the dividend and retention policies of the firm and many others. Shareholder’s wealth and in effect social wealth is maximised only when the market value of the share is maximised.

 

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