Under traditional approach business is considered to be an economic organization and profit is considered to be a good standard for measurement of efficiency. So this is a natural objective that the profit should be maximized.
The Maximization of Wealth is considered as main objective instead of profit maximization. The financial management has to do all such work for the firm which maximize the wealth and should not do all work which minimize the wealth. All such works should be done which will make the wealth and the net wealth of firm maximum. If the problem of choosing one work out of alternate works arises, then such a work should be chosen which increases net present value of the firm. Net present value is obtained by deducting initial capital from the total present value. The theory of maximization of wealth is used for understanding the changed business circumstances. Those companies which issue the equity shares and the prices of those equity shares are quoted in the stock market then the market price of the shares is an indicator whether the value of assets of the firm is increasing or not. The price of shares reflects the value of assets of the company. The wealth of shareholders increases only when there is increase in the price of shares. The price of shares of the company is effected by the size of earned profit but this is also possible that the shares of the profit earning company are not increasing because the market value shares is effected not only by the quantity of profit of the company but also by the profit earning capacity, dividend policy of the company, liquidity of assets etc. Therefore, even when the quantity of profit is same in two companies, their market value of shares is different. The market value of shares is indication of prosperity and efficiency of the companies.
Owing to limitation like timing, social consideration etc. in profit maximization, In today’s real world situation which is uncertain and multi period in nature, wealth maximization is a better objective. Where the time period is short and degree of uncertainty is not great, wealth maximization and profit maximization amount to essentially the same.