Answer to Question #181814 in Management for Eric Asare

Question

Explain how a financial manager can, in practice, maximize the wealth of shareholders.

Answer 1

Maximizing shareholders' wealth is one of a firm's main objectives that a financial manager needs to understand. Shareholder wealth refers to the market price of the common stock of a firm. Managers can maximize the wealth of shareholders through paying dividends periodically or enhancing the increase of the market value. A manager should ensure shareholders receive cash dividends on time to increase the value investors have on the shares. Receiving late dividends lowers the value shareholders have on the benefits. Also, there is a need to consider timing and risk elements when making financial decisions. Decisions made contribute to the value of shareholder's wealth. Good decisions lead to an increase in the market price of the stock of the firm. An increase in the stock price increases the value of the firm and that of the shareholder.