Why is “Profit” a problematic target Please consider in your answer.pdf
- 1. Why is “Profit” a problematic target? Please consider in your answer different types of profit, the possible differences between profit and turnover (=sales) as a measure and also the definitions and meaning of profit/capital ratio(s). Solution "Profit" is a problematic target because it includes wide range of emotions and and issues among respondents i.e. they ranged acceptable profit to profit effect on decision making and future variability of capitalization. in same way today's cash is driven by yesterday;s decision making on pricing. Profit is the difference between income a business generates and expenses incurred in business running. Types of Profit - 1. Gross Profit - Gross profit is difference between all sales of the company and cost of producing the products for a company. this mainly used by company officials when making decision about pricing and what material to be used in manufacturing part of business. 2. Net Profit - Net profit subtracts all of the expenses of company from its gross sales. The net profit is and indicator that how business performing over the time. 3. Net Profit after Interest and Tax - Net profit of a company further reduced when interest and taxes are deducted from profit. 4. Retained Profit - Retained profit is any profit remaining after the shareholders receive their dividends.most of the time this funds will reinvested in company. Differences between profit and turnover - Turnover is net sales generated by firm while profit is earning of a firm after all expenses have been charged against net sales.Thus Turnover and Profit is beginning and ending points of the income statements. A difference between turnover and profit is that a rising in turnover may be a sign that business is growing but profit is and indicator of health of business. The definitions and meaning of profit/capital ratio - Profit capital ratio expressed as percentage, complements ratio by add a company's debt liabilities, or funded debt, to equity to reflect company's total capital. This ratio measures narrow focus to gain a better understanding of company's ability to generate returns from available sources.