Profit is an important motivator for business managers. There have,however been attacks on profits by some experts including Drucker who believes that the essence of business is the creation of customers. This is evidence that profits play some inportant roles in our economic system.
Profit is an important motivator for business managers. There have,however been attacks on profits by some experts including Drucker who believes that the essence of business is the creation of customers. This is evidence that profits play some inportant roles in our economic system.
Profit has been defined as what is left after all costs have been deducted from businesw revenues. It is calculated by subtracting the appropraite,fixed and variable costs from the total receipts earned from the sale of goods. The role of profit in an economic system include:
A measure of performance: In a firm or in an industry,there may be a set standard for measuring profit and this can also be used to determine performance of an individual;department,a firm or an industry,for example the banking industry in Nigeria.
A control technique: The plans and policies of a board of directors may be limited by profit levels of the firm. In the same manner,the board of directors can use profit levels to control the actions of the chief executive team.
A tool for creating profit centres: The idea of profit centre has to do with drawing an imaginary line around a segment of a business and treating it as a semi-separate entity where the manager is required to achieve a specified profit goal: The practice is now being adopted by several industries such as soft drinks,beer and department stores in Nigeria.
An incentive for effective performance of tasks
One way by which a firm can encourage efficiency among workers is to institute reward for better performance,as well as penalty for poor performance.
One way by which a firm can encourage efficiency among workers is to institute reward for better performance,as well as penalty for poor performance.
The practice of Profit sharing plan has been a successful tool in this role. The essence is to tie workers earnings to contribution made towards profit levels. Where this is in practice,some employees earn double the wages of their counterparts in other firms.
With this in mind,most workers are poised to work more efficiently to earn higher wages.
With this in mind,most workers are poised to work more efficiently to earn higher wages.
Means of survival and growth for firms:
No firm can exist for long unless it makes profits. Purchases of raw materials,new equipments,new factories,hiring of qualified employees;all are made possible only,if profits are earned. Moreover,investors are reluctant to invest in a business unless they can see records of profits earned and the assurance that profits will continue to be earned for some time to come.
No firm can exist for long unless it makes profits. Purchases of raw materials,new equipments,new factories,hiring of qualified employees;all are made possible only,if profits are earned. Moreover,investors are reluctant to invest in a business unless they can see records of profits earned and the assurance that profits will continue to be earned for some time to come.
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