Profit Vs Wealth

PROFIT IS NOT THE ONLY FACTOR THAT CONTRIBUTES TO THE COMPANY SURVIVAL IN THE LONG RUN


• Considering the above statement concerning maximization of profits, it will provide some sense of why wealth maximization in unit trust is preferred as compared to profit maximization. The reason are:

o Time Horizon: Profit maximization tends to be a short-term approach. Decisions are focus on getting as much current profit as possible with less consideration on its impact on the long-term profits.

o Time of Returns: Profit maximization gives no considerations on the timing of returns and thus time value of money.

o Distributions of Returns: The profit maximization tends to ignore the owners wish to receive a portion of earnings in the form of dividends.

o Risk Orientation: Profit maximization tends to give less consideration to risk in an attempt to maximize profits, and thus faces higher risk in operations. (Higher risk means higher return.

o Wealth (Unit Trust) Type of Return: Dividend, Bonus, Unit Split and Capital appreciation. These are the possible returns by investing in unit trust. Furthermore, Bonus Splits are not pro-rated, making it more attractive for investors to come in at any time.

o Capital Gain is NOT Taxable: by investing in unit trust, unlike dividends, bonuses or unit splits are also not taxable.

• It’s a must for a company to make profits but without sacrificing long-term prospects of the company to actively participate in Unit Trust with Public Mutual as another of his investments portfolio.

• The ability of the company to gain appropriate level of profit and wealth with an acceptable risk will increase the share price and hence the company/ owner wealth.