Profit

8 Key excerpts on "Profit"

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  Wealth, Welfare and the Global Free Market

  A Social Audit of Capitalist Economics

  • Ibrahim Ozer Ertuna(Author)
  • 2016(Publication Date)
  • Gower

    (Publisher)

  Under the assumptions of the capitalist free market economy, with prices developed in the perfectly competitive markets, theoretically, all the markets are cleared and factors of production receive their fair shares from the output. If the Profits are considered as returns to entrepreneurial skills, entrepreneurs will get their proper share from the income generated. So the competitive markets provide full employment and fair returns to all factors. There may not be the problem of generating more or less income. But in real-life cases, there is a dilemma, since Profit maximization may not necessarily lead to income maximization. In fact, companies’ decisions for Profit maximization may well reduce countries’ national income. These issues will be discussed below. The Definition of Profit The concept of Profit has different meanings in economics and accounting. In daily usage, the accounting concept is used. In economics, Profit is the residual income left after payments are made for all the factors of production. As we have mentioned above, in free market economies, Profits are eliminated: the value added that is created by production is totally distributed to the production factors. Every one of the production factors receives its appropriate returns. Economic theory assumes that firms earn revenues by selling the products they produce. As the firm sells more products, prices decline, so the contribution of additional sales to revenues will decrease. This additional revenue is called “marginal revenue” in economics. The costs of the products sold consist of both the costs of input materials and the factor costs. That is, the costs considered are costs of materials, labor, capital, and all relevant costs pertaining to the production and sale of the products. Again, under the assumptions of economics, the costs of additional production and sale follows first a decreasing, then an increasing trend. The additional cost is called “marginal cost” in economics

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  Economics for Investment Decision Makers

  Micro, Macro, and International Economics

  • Christopher D. Piros, Jerald E. Pinto(Authors)
  • 2013(Publication Date)
  • Wiley

    (Publisher)

  This theory states that firms try, or should try, to 90 Economics for Investment Decision Makers increase the wealth of their owners (shareholders) and that market prices balance returns against risk. However, complex corporate objectives may exist in practice. Many analysts view Profitability as the single most important measure of business performance. Without Profit, the business eventually fails; with Profit, the business can survive, compete, and prosper. The question is: What is Profit? Economists, accountants, investors, financial analysts, and reg- ulators view Profit from different perspectives. The starting point for anyone who is doing Profit analysis is to have a solid grasp of how various forms of Profit are defined and how to interpret the Profit based on these different definitions. By defining Profit in general terms as the difference between total revenue and total costs, Profit maximization involves the following expression: Π ¼ TR  TC ð3-1Þ where Π is Profit, TR is total revenue, and TC is total costs. TC can be defined as accounting costs or economic costs, depending on the objectives and requirements of the analyst for evaluating Profit. The characteristics of the product market, where the firm sells its output or services, and of the resource market, where the firm purchases resources, play an important role in the determination of Profit. Key variables that determine TC are the level of output, the firm’s efficiency in producing that level of output when utilizing inputs, and resource prices as established by resource markets. TR is a function of output and product price as determined by the firm’s product market. 2.1. Types of Profit Measures The economics discipline has its own concept of Profit, which differs substantially from what accountants consider Profit. There are thus two basic types of Profit—accounting and eco- nomic—and analysts need to be able to interpret each correctly and to understand how they are related to each other.

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  An Entrepreneurial Approach to Stewardship Accountability

  Corporate Residual and Global Poverty

  • Raymond W Y Kao, Kenneth R Kao;Rowland R Kao;;(Authors)
  • 2004(Publication Date)
  • WSPC

    (Publisher)

  From the viewpoint of the individual, we may have gains in all our endeavors, not necessarily in the form of money, but in terms of a gain of personal value. Some may have exchange value (i.e. in today’s society, monetary worth), others may just be proud personal possessions with no dollars and cents attached. For example, a wealthy individual who offers several million dollars as an endowment to a university and receives an hon-orary doctorate has made a sort of Profit. In the context of the exchange economy, he has made a gain, otherwise, the exchange would not have been made. While there are complications if one considers all situations (where is the exchange and what is the Profit from generosity that no one sees?) the meaning is clear. Any individual engaged in any endeavor has acquired Profit if he can ascertain that what is offered from the endeavor at its com-pletion is better or greater than what the individual had in the beginning. In fact, this is the definition advocated by J. R. Hicks, an Oxford Economist. In fact, the economists’ idea of Profit is far more complicated than most of us are aware. In short, for a business undertaking, Profit cannot be deter-mined until the operation of the business ends. This does not mean year end, but rather the end of its activities. In reality, production and other movement of goods and services are processes of continuation, so Profit in this sense is a measure of the perceived success of a business at a point in time. Thus, the operation of a business cannot be arbitrarily cut off as we do in 90 Stewardship Accountability From Cost to Profit 91 accounting such as: Operations for the period of January 1, 2005 to December 31, 2005. Therefore, the possibility of determining a firm’s Profit is at the time when the business effectively terminates its operation. Our current accounting practice for Profit determination would be illogical and contrary to economic reality.

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  New Perspectives of Profit Smoothing

  Empirical Evidence from China

  • Domitilla Magni(Author)
  • 2019(Publication Date)
  • Palgrave Macmillan

    (Publisher)

  accounting rules. Many, from the classical economists, have tried to approach the issue of Profit and its assessment; others have governed just the accounted nature and added, in an already-busy contest, many theories and definitions on the subject. The evolution of knowledge of business, finance, and economics has allowed an increase in previous studies on Profit. Firm and its management have become, over the years, the main focus of managerial analysis, assuming relevance that is both increasingly global and interdisciplinary. The rules and economic directives require continuous management apparatus, overwhelmingly, on the ability to persist over time, in conditions of economic and financial equilibrium. Changing the appearance and nature of the firm changes accordingly the approach of business manager and the role of Profit management. Profit has always been analyzed as a residual item in the firm but it changes its shape, and is approached by most as a strategic financial variable.

  Profit must be closely related to the concept of enterprise, and, in that sense, the very determination of Profit justifies the existence of all the firm’s production equipment and is considered indispensable and underlying any business activity. At a firm level, Profit is considered as a goal to itself or, alternatively, in connection with other goals such as growth or efficiency.1

  Before analyzing all the literature and theories of economists who have debated the notion of Profit,2 it is necessary to clarify how and through which mechanisms the search for Profit can influence the business behaviors, and, finally, it is appropriate to dissolve some inherent nodes both the role of Profit as an economic category and its nature.

  From these initial considerations, it is understood that, in the first place, the subject of the Profit should be identified. The need to differentiate, in a theoretical way, the Profit from the worker’s wage, from the natural resource owner’s income, and from the interest generated by the liquidity loan, manifests itself at the same time as the historical process of capitalist division of labor.3 In this case, the historical recalls are fundamental: on the one hand, the progressive fragmentation of trades into specializations, the fragmentation of craftsmanship, and the expansion of the merchant system have prompted the making of entrepreneurs-merchants, concerned about buying the products to bring them to the markets and to sell raw material to every single producer, gaining a Profit. On the other hand, the separation of workers from work tools, the organization of work in the factory, and the continuous technological changes have overwhelmingly overlooked the overproduction of production, creating new problems with regard to its appropriation and its intended use for purpose consumption or accumulation. In parallel, a new social structure emerged, in which a class—that of entrepreneurs-producers—took the power to decide how, what, and how many to produce.4

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  Managerial Economics

  The Analysis of Business Decisions

  • Stephen Hill(Author)
  • 2016(Publication Date)
  • Red Globe Press

    (Publisher)

  In particular, economic Profit needs to be careful-ly distinguished from the concept of accounting Profit. The differ-ence is largely due to a difference in purpose. It is the purpose of the accountant to present a 'true and accurate' record of the firm's activities. Given this criteria, it is inevitable that the accountant will be concerned with the precise recording of previous activities, dealing wholly in payments and receipts actually occurring. The measurement of Profits for decision-making purposes is a rather different objective, involving especially the notion of opportunity cost, i.e. the conceptualisation of what might have happened but did not. 'In business problems the message of opportunity cost is that it is dangerous to confine cost knowledge to what the firm is doing. What the firm is not doing but could do is frequently the critical cost consideration which it is perilous but easy to ignore.' 2 The measurement of Profit The notion of Profit has developed a variety of meanings, some technical and some emotive. Defining Profit as the surplus over opportunity cost is conceptually ideal from a decision-making point of view, but notoriously difficult to measure in any consistent and objective sense. It is time to take a closer look at the details of Profit measurement, and to attempt to arrive at a working definition of Profit that has operational value. In a sense the firm can be considered as an organisation that transforms inputs into output. Any input-output mechanism can be evaluated in terms of the ratio of the output to input. For example, Profits and objectives 45 the efficiency of a motor car can be measured in terms of the ratio of output (miles) to input (petrol). Thus a car returning 40 miles per gallon is more fuel efficient than a car which gives 30 miles per gallon. Problems arise, however, when the inputs and outputs have more than one dimension. Continuing the motor car example, inputs include oil , servicing time , tyres etc.

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  Economics

  • William Boyes, Michael Melvin(Authors)
  • 2015(Publication Date)
  • Cengage Learning EMEA

    (Publisher)

  top: ª Carsten Reisinger/Shutterstock CHAPTER 23 Profit Maximization Preview You start a business. To get it off the ground, you use your own money and perhaps the money of friends and relatives. Then you put in many hours to get the business on a suc-cessful footing. If the business provides enough to match what you could have earned working for someone else (taking into account the joy of owning your own business), you consider it a success. Similarly, when you purchase the stock of a publicly traded company, you are expecting that the firm will pay you more than you could have gotten using that money in another way. If it does, then the investment is a success. We measure the success of a business and an investment in terms of Profit. FUNDAMENTAL QUESTIONS 1. How do firms decide how much to supply? 2. What is a market structure? 3. What is the difference between economic Profit and accounting Profit? 4. What is the role of economic Profit in allocating resources? Ariel Skelley/Getty Images 509 Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. 23-1 Profit Maximization Profit is total revenue less total costs. Total revenue is the quantity of goods and services sold multiplied by the price at which they are sold, PQ . So, Profit ¼ PQ – cost of land, labor, and capital. 23-1a Calculation of Total Profit Consider Table 1, in which column 1 is total output ( Q ), column 2 is price ( P ), column 3 is total revenue ( TR ), and total cost ( TC ) is listed in column 4. Profit, the difference between total revenue and total cost, is listed in column 5.

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  The Economic Gulag

  Patriarchy, Capitalism, and Inequality

  • Robert Bahlieda(Author)
  • 2018(Publication Date)
  • Peter Lang Inc., International Academic Publishers

    (Publisher)

  The most often ignored fundamental about Profit is that it is a completely fictitious and undisclosed number most often arbitrarily added to the cost of goods and services by the producer or seller that is entirely determined by the person designating that amount with little need for justification (Hardoon, 2017). Economists who labour over complex and arcane formulas regarding how capitalism works best have paid only scant attention to Profit and never developed a formula for an optimal rate of distribution of Profit that creates the broadest economic benefit for all and the strongest economy. Clearly, unlim- ited Profit does not do that as the past three decades of neoliberal deregulation has resoundingly proven. Instead Profit is employed as a blunt instrument with only general and unspecified results for humanity that are rarely quantified. It remains the “black box” of capitalism. Costs go in but no one knows what exactly occurs to create the Profits that come out or how much that costs or what benefits result for society other than a few amorphous “jobs.” In contrast the Profit problem 137 the benefits for the entrepreneur are clearly visible in their increasing wealth. It is like letting the fox decide how many hens will survive in the hen house. Nowhere is it quantified, described, or even generally discussed what a “reasonable” Profit actually is yet we accurately know that a reasonable wage, benefit, or pension is. It is just assumed that individual entrepreneurs and corporations will apply a reasonable Profit in addition to their costs under the restrictions of competition yet there is virtually no evidence that they do this; in fact the opposite is true. Curiously, the most corrupt system in the world is operated largely on the honour system. We regularly place our trust in the specious moral judgment of the private sector while the private sector operates on an economic theory that is amoral and self-interested.

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  Money, Enterprise and Income Distribution

  Towards a macroeconomic theory of capitalism

  • John Smithin(Author)
  • 2008(Publication Date)
  • Routledge

    (Publisher)

  6 A theory of Profit

  Introduction

  There are two aspects to a theory of Profit. The first is the technical monetary question of how it is possible for Profits denominated in the unit of account to actually be “realized”. (That is, how can it be that M' can be numerically greater than M ?) This requires a theory of endogenous money and credit creation, as discussed in earlier chapters of this book. In addition to this, however, there is also the issue of “real” Profits – how does the system generate a surplus in the form of goods and services greater than the amounts of goods and services that went into production, or were used up in production? This is ultimately a matter of real income distribution, in modern terms a question of the distribution of real GDP. The sort of question that is asked, for example, is – what determines the Profit share in GDP?

  This purpose of this chapter is to deal with the second rather than the first of these two aspects of the theory of Profit, though it should continue to be borne in mind that in a capitalist economic system the real surplus that is being discussed could not actually have come into existence without the mechanism of credit creation that first generates Profit in monetary form. As this is a point that is often lost or simply absent in most existing academic discussion of these questions, it is worth re-emphasizing at the outset.

  As is perhaps fairly well known, the orthodox neoclassical theory of eco-nomics is not a great deal of help is discussing Profit, and, in turn, this is a major handicap to that body of thought in the study of a capitalist economic system. In fact, in the supposedly “best developed model of the economy” (Hahn 1983, 1) in the orthodox tradition, that is the neo-Walrasian model of competitive general equilibrium, there is no Profit at all. Total income is distributed between wage and a sort of rental return to the owners of different types of purely physical capital, but there is nothing in the way of a surplus over and above the costs of production. Nothing, that is to say, that would be recognizable as Profit in the accounting sense. Out of equilibrium, it may be allowed that “short-run” Profits may accrue to a firm if it gets into a temporary position with some sort of monopolistic advantage. In fact, within this intellectual framework, these fleeting situations have to bear the whole burden of providing an incentive mechanism for the firm actually to do anything at all. In the “long run”, however, all these short-run Profits are supposedly “competed away”, leaving nothing but the costs of production. In the mathematical expositions of neoclassical theory, a “zero Profit condition” is imposed as a matter of course.

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