Financial Objectives: Shareholder Wealth, Profit, EPS Growth and Stakeholder Value

Ask the owners of a company what they want and most will say “more wealth”. Ask the managers, the employees, the bank and the community, and the answers differ. Yet a company cannot make a sensible decision about a project, a loan or a dividend without knowing what it is trying to achieve.

This topic sets out the four financial objectives a company can adopt: stakeholder value creation, shareholder wealth maximisation, profit maximisation and growth in earnings per share. For each it gives the meaning, the advantages and the practical difficulties, with numbers showing how an objective can be met on paper without making the owners better off.

It then explains why shareholder wealth is the accepted principle but why companies use other measures as practical targets. The next topic covers stakeholders and the conflicts between their objectives.

The choice of objective runs through the whole course, because the discount rate, the dividend and the financing mix are all chosen to serve it. In the diets reviewed, the objectives appear in scenario questions, such as the one on government activities and “achieving financial objectives” in November Diet, 2025, Question 6. Read the nature and purpose of financial management first.

The four objectives

A financial objective can be expressed in several ways. The main ones are stakeholder value creation, shareholder wealth maximisation, profit maximisation and earnings per share growth. They are not exclusive: a company may pursue more than one, and the last three are often used as measurable stand-ins for the second.

Stakeholder value creation

This is the process of creating value for all stakeholders. Its supporters believe that the competing claims of a wide range of stakeholders should be balanced by the organisation as it considers its economic and social responsibilities. It requires the organisation to identify all its stakeholders and their interests and to build a strategy that balances them, especially where interests conflict between and within groups.

• Advantages: a better reputation from positive stakeholder experiences; stronger bonds and loyalty; a competitive advantage from unique value propositions; long-term growth through investment in people, innovation and social responsibility; and better risk management of social and environmental impacts.
• Challenges: managing conflicting demands; finding metrics to measure stakeholder value; unequal power among stakeholders; global issues that affect them; trade-offs between financial and non-financial objectives; and the difficulty of building the objective into strategy, operations and culture.

Shareholder wealth maximisation

The main corporate objective is stated as maximising the wealth of the shareholders, which means maximising the market value of the company. Most companies are owned by shareholders, so it is logical that their wealth is the primary objective. Wealth is increased by dividends and by a higher share price, and a strategy is desirable if it produces higher dividends, higher share prices or both.

The return to a shareholder in a period is the dividend plus the change in price, as a percentage of the opening price. A share that moves from ₦5.00 to ₦5.60 and pays a dividend of ₦0.30 gives (₦0.30 + ₦0.60) ÷ ₦5.00 = 18%.

• Advantages: a clear objective; encourages the effective allocation of resources to increase returns; helps long-term viability; keeps the company responsive to the market; supports long-term growth.
• Challenges: over what period should targets be set? How is wealth creation measured? How should the target be divided between dividends and share price growth? And share prices are affected by general market sentiment, so a short-term rise or fall may reflect investor attitudes and not the company’s success.

For these reasons, wealth maximisation is accepted as the sound basis for financial planning but is hard to use as a target against which actual performance is measured. Other objectives, such as profit maximisation and growth in earnings per share, are used instead, in the expectation that they will increase shareholder wealth.

Profit maximisation

Here the organisation sets targets for profit growth over a planning period, increasing revenue, reducing costs and allocating resources efficiently.

• Advantages: clear and simple; encourages efficient use of resources; easy to measure; encourages competitiveness and innovation; and can increase returns through dividends and capital growth.
• Challenges: the period over which profit is measured, because short-term profit can be raised at the expense of long-term profit (for example by not replacing ageing equipment or by avoiding projects that make early losses); profit can be raised by raising and investing more capital, while profit per share falls; managers on annual targets may be short-sighted; accounting profit is not cash flow; and profit can be manipulated (window dressing).

For example, a company earns ₦70m with 100 million shares, an earnings per share of 70 kobo. It raises ₦100m of new equity by issuing 25 million shares at ₦4.00 and invests it, lifting profit to ₦84m. Profit has risen by 20%. But earnings per share is ₦84m ÷ 125m = 67.2 kobo, which is lower. The owners are worse off in earnings terms, although the profit objective was achieved.

Earnings per share growth

Earnings per share (EPS) is profit after tax and preference dividends divided by the number of shares in issue. The objective may be to increase EPS each year, perhaps by a target amount for the next few years.

• Advantages: more profit per share means more to pay as dividends and more retained to reinvest for future earnings; over the long term it should raise shareholder wealth.
• Challenges: EPS can be raised by borrowing, through the tax relief on interest, and not because the company performs better; higher gearing exposes shareholders to more financial risk, so the share price can fall even while EPS rises; and, as a profit measure, it shares the weaknesses of profit maximisation.

For example, a company earns profit before interest and tax of ₦100m, pays tax at 30% and has 100 million shares: profit after tax ₦70m, EPS 70 kobo. It borrows ₦200m at 10% and uses it to buy back 40 million shares. Interest is ₦20m, profit before tax ₦80m, tax ₦24m, profit after tax ₦56m, and shares 60 million, so EPS is ₦56m ÷ 60m = 93.3 kobo, an increase of 33%.

Total earnings fell and the business is no better, but EPS rose, and the shareholders now hold shares in a more highly geared company.

Which objective, and how it is evaluated

The points to take away are these. Financial management is concerned with the investment, financing and dividend decisions. The generally accepted objective of a company is to maximise shareholders’ wealth. There are practical difficulties in choosing a measure of growth in that wealth. Targets such as profit and EPS growth are used, but no financial target on its own is ideal.

Financial performance is therefore evaluated in several ways at once: the increase in share price, growth in profit, growth in EPS and so on. The later topic on evaluating corporate objectives shows how ratios and total shareholder return are used to do this.

The ideas in more depth

Why wealth is defined by market value

Market value is the price at which investors are willing to buy the shares, and it reflects their view of the size, timing and risk of all future cash flows. A decision that raises that value makes the owners richer, whatever it does to the current year’s profit.

This is why net present value, which discounts cash flows for time and risk, is the main investment criterion in the course.

Why companies still pursue profit and EPS

Share price is outside the control of management and is affected by sentiment. Profit and EPS are measured in the accounts, they can be budgeted, and managers can be held to them. They are acceptable proxies if the company watches their weaknesses: the period, the risk added by gearing and the cash behind the profit.

Sources and references

• No accounting standard governs this topic. For the calculation of earnings per share, see International Accounting Standard (IAS) 33 Earnings per Share.

These points are stated as at 5 November 2026.

Worked examples

1. Gain.
   Dividend ₦0.30 + price rise ₦0.60 = ₦0.90.
2. Return.
   ₦0.90 ÷ ₦5.00 = 18%.

1. Before.
   ₦70m ÷ 100m = 70 kobo.
2. After.
   ₦84m ÷ 125m = 67.2 kobo, a fall.

1. Before.
   ₦100m × 0.70 = ₦70m; 70 kobo.
2. After.
   (₦100m − ₦20m) × 0.70 = ₦56m
   ÷ 60m = 93.3 kobo.

How to answer in the exam

• Name the objective, define it and give a measure before listing advantages and problems.
• Show the weakness with a number where the question allows, such as EPS falling after a share issue.
• State that wealth maximisation is the principle and the others are practical proxies.
• Link to the scenario: say which objective suits the company and why.

Common mistakes in the exam

• Treating profit maximisation and shareholder wealth maximisation as the same thing.
• Forgetting that EPS can rise through borrowing.
• Ignoring the time period over which an objective is measured.
• Saying that share price reflects only the company’s performance.
• Listing advantages without the practical challenges.
• Calculating the return on a share without the dividend.

Quick revision

• Shareholder wealth = dividends plus share price growth; the fundamental objective.
• Profit: simple but short-term, ignores risk, cash, capital employed and can be manipulated.
• EPS growth: ties profit to the owners but can be inflated by gearing.
• Stakeholder value: balances all claims but is hard to measure.

Practice questions

These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.

Recall check: multiple choice

Section B style: written questions

A further written question

Model answers

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