A business's only responsibility is to maximise financial returns to Essay

A business's only responsibility is to maximise financial returns to its a shareholders - Essay Example nancial returns and profitability would mean to shareholders, the different factors that affect profitability and contribute to maximizing shareholder wealth, the examples and evidence of shareholders returns and company policies and strategies will be analyzed. This essay would highlight the fact that it is a business and company’s primary responsibility to increase profits and improve shareholder financial returns and wealth maximization to maintain the trust of shareholders and investors in the market although there are many factors and controversies involved as will be discussed. Profitability of a company is measured with the values of return on equity (ROE) and return on assets (ROA). Return on equity reveals the profits a company earns when compared with the total amount of shareholder equity. Shareholder equity represents assets created by retained earnings of business and the capital invested by the owners. Shareholder equity equals total liabilities subtracted from total assets and refers to what shareholders possess. High returns on equity indicates that the company can generate cash internally and higher returns on company’s equity suggests better position of the company. For example if a business had a net worth or shareholder’s equity of $200 million dollars and made a profit of $20 million dollars, the earnings from returns on equity would be 10% (see Omran et al, 2002). Higher returns are positive for the company and indicate valuable returns and profitability for shareholders as well. It is the responsibility of a company to see to it that shareholders get adequate and profitable financial returns for their investments (Robbins et al, 2003/2004). The formula for returns on equity is: Net Profit / Average Shareholder Equity for the Period. Asset turnover is an indication of total sales for $1 of assets and return on assets or ROA gives an indication of profits generated by a company for each $1 in assets. Profitability is measured both in