Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
The Role of Profits and Markets
Profit <ul><li>The difference between the costs of production and revenue earned from sales </li></ul><ul><li>Profit = TR ...
Profit <ul><li>Drives business objectives: </li></ul><ul><li>Normal profit  – the minimum amount needed to keep a business...
Profit <ul><li>Functions of Profit </li></ul><ul><li>Existence of profit suggests: </li></ul><ul><ul><li>Demand buoyant, p...
Profit margin = profit / revenue x 100 <ul><li>Margins can be affected by: </li></ul><ul><li>Cost of capital equipment </l...
Losses <ul><li>When costs exceed revenue over a period </li></ul><ul><ul><li>Caused by temporary downturn in economy </li>...
Adding Value <ul><li>Difference between the input costs (raw materials, etc.) and the value placed on the product/service ...
The Market System <ul><li>The Market:   </li></ul><ul><li>Consumers represent  demand </li></ul><ul><li>Producers represen...
The Market System <ul><li>Price acts as a signal </li></ul><ul><li>Rising prices  – goods in shortage, demand greater than...
The Market System <ul><li>Factors influencing supply and demand: </li></ul><ul><li>Incomes –  demand </li></ul><ul><li>Cos...
The Market System <ul><li>Changes in supply and demand </li></ul><ul><li>Create surpluses and shortages </li></ul><ul><li>...
Upcoming SlideShare
Loading in …5
×

Role Of Profits And Markets

1,813 views

Published on

Role Of Profits And Markets

Published in: Business
  • Be the first to comment

Role Of Profits And Markets

  1. 1. The Role of Profits and Markets
  2. 2. Profit <ul><li>The difference between the costs of production and revenue earned from sales </li></ul><ul><li>Profit = TR – TC where: </li></ul><ul><ul><li>TR = Total Revenue (Price x Sales) </li></ul></ul><ul><ul><li>Also referred to as Turnover </li></ul></ul><ul><ul><li>TC = FC – VC where: </li></ul></ul><ul><ul><li>FC = Fixed Costs (overheads) </li></ul></ul><ul><ul><li>VC = Variable Costs (direct costs or cost of sales) </li></ul></ul>
  3. 3. Profit <ul><li>Drives business objectives: </li></ul><ul><li>Normal profit – the minimum amount needed to keep a business in a particular line of production </li></ul><ul><li>Abnormal profit – profit above normal profit – market power? </li></ul><ul><li>Subnormal profit – below normal profit – how long can the firm survive? </li></ul>
  4. 4. Profit <ul><li>Functions of Profit </li></ul><ul><li>Existence of profit suggests: </li></ul><ul><ul><li>Demand buoyant, prices may be rising, worth entering market </li></ul></ul><ul><li>Profit attracts new businesses </li></ul><ul><li>Profit encourages efficiency </li></ul><ul><li>Profit encourages enterprise, innovation and risk taking </li></ul>
  5. 5. Profit margin = profit / revenue x 100 <ul><li>Margins can be affected by: </li></ul><ul><li>Cost of capital equipment </li></ul><ul><li>Changes in interest payments </li></ul><ul><li>Labour costs </li></ul><ul><li>Type of market </li></ul><ul><ul><li>Top end of the market </li></ul></ul><ul><ul><li>Luxury goods </li></ul></ul><ul><ul><li>High margins/low volume </li></ul></ul><ul><li>Bottom end of the market </li></ul><ul><ul><li>Everyday use </li></ul></ul><ul><ul><li>‘ Cheap as chips’ </li></ul></ul><ul><ul><li>Low margin/high volume </li></ul></ul>
  6. 6. Losses <ul><li>When costs exceed revenue over a period </li></ul><ul><ul><li>Caused by temporary downturn in economy </li></ul></ul><ul><ul><li>Caused by external shocks </li></ul></ul><ul><ul><li>Caused by changing tastes/fashions/technology </li></ul></ul><ul><li>Necessity of covering variable costs </li></ul><ul><li>Losses can be sustained: </li></ul><ul><ul><li>Restructuring </li></ul></ul><ul><ul><li>Re-financing – shares/loans </li></ul></ul><ul><ul><li>Using reserves </li></ul></ul><ul><ul><li>Cut costs </li></ul></ul><ul><ul><li>Boost sales </li></ul></ul>
  7. 7. Adding Value <ul><li>Difference between the input costs (raw materials, etc.) and the value placed on the product/service by the market </li></ul><ul><li>Value added may be tangible – additional features or intangible – brand image, style, etc. </li></ul><ul><li>Value Chain – value adding activities in a product or service </li></ul>
  8. 8. The Market System <ul><li>The Market: </li></ul><ul><li>Consumers represent demand </li></ul><ul><li>Producers represent supply </li></ul><ul><li>Interaction of the two creates the market </li></ul><ul><li>Changes in supply and demand conditions cause changes in the market </li></ul>
  9. 9. The Market System <ul><li>Price acts as a signal </li></ul><ul><li>Rising prices – goods in shortage, demand greater than supply – firms attracted to that line of production by existence of profit </li></ul><ul><li>Falling prices – existence of surplus, supply exceeds demand – incentive to move to more profitable line of production </li></ul>
  10. 10. The Market System <ul><li>Factors influencing supply and demand: </li></ul><ul><li>Incomes – demand </li></ul><ul><li>Costs of production – supply </li></ul><ul><li>Advertising – demand </li></ul><ul><li>External shocks – supply </li></ul><ul><li>Fashions and tastes - demand </li></ul><ul><li>Technology – supply </li></ul><ul><li>Can you think of others?? </li></ul>
  11. 11. The Market System <ul><li>Changes in supply and demand </li></ul><ul><li>Create surpluses and shortages </li></ul><ul><li>Influence price </li></ul><ul><li>Firms respond to seek profitable opportunities </li></ul><ul><li>Business flexibility important to long term survival in changing markets </li></ul>

×