Profitability and Control Measures , Challenges and Demands

1. TOPIC: A. Profitability and
Control Measures
PRESENTED BY:
Deepak Arjun Thakre
M.Pharm I Year
Industrial Pharmacy
Department
Shri Sadashivrao Patil Shikshan Sanstha's
SMT. KISHORITAI BHOYAR COLLEGE OF PHARMACY,
KAMPTEE
Dr. Nishant Awandekar
HOD Industrial Pharmacy
Department
GUIDED BY:
UNIT - IV

2. • Introduction
• Profitability
• Profitability analysis
• Technique for analysis
• Control Measures for profitability
Content-
2

3. Profit is the money earned by a business when its total revenue exceeds its total expenses
The method of calculating profit is simple: subtract a business's expenses from its total
revenue over a fixed amount of time.
Profit is the real earnings of a business which indicates the financial position of the company
as well.
Profit is the positive earnings remained for a company after all costs and expenses have been
subtracted from the total sales.
Profit is all about what left out after subtracting expenses from the revenue.
Introduction:
Profit:
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4. Types of Profit :
There are three common measures of profit:
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3
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5. Gross profit is the income from the sales of
your products, minus the direct costs
involved in making them, which are also
called cost of goods sold (COGS).
These include labour and raw materials.
Gross Profit = Revenues - COGS
1. GROSS PROFIT:
Types of Profit : 5

6. Operating profit removes operating expenses like overhead and other
indirect costs as well as accounting costs like depreciation and amortization.
It is sometimes referred to as earnings before interest and taxes.
Examples of operating expenses include sales expenses, marketing,
advertising, salaries and wages, employee benefits, depreciation, rent,
commissions, and any other costs that relate to the ongoing operations of
the business.
2. OPERATING PROFIT:
Types of Profit : 6

7. Net profit (also called net income or net earnings) is the value that remains
after all expenses, including interest and taxes, have been deducted from
revenue. This is the final figure located at the bottom of the income statement.
The net earnings figure includes non-operating expenses such as interest and
taxes. It can also be referred to as net income.
Types of Profit :
3. NET PROFIT:
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8. Profitability is the primary goal of all business ventures. Without profitability
the business will not survive in the long run.
So measuring current and past profitability and projecting future profitability
is very important.
Profitability is measured with income and expenses. Income is money
generated from the activities of the business.
Recording profitability for the past period or coming period, measuring
profitability is the most important measure of the success of the business.
A business that is not profitable cannot survive. Conversely, a business that is
highly profitable has the ability to reward its owners with a large return on their
investment.
PROFITABILITY: 8

9. Definition -
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10. What is Profitability
Analysis?
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11. Profitability refers to the profits or gains a business makes in relation to
its expenses.
Therefore, profitability analysis refers to the process of calculating or
analyzing the profits of a business.
It helps businesses identify their revenue streams and where they can
reduce their expenses to generate maximum gains.
Profitability analysis helps examine gains generated from different
business segments like customers, products, or services.
It thus offers quantitative as well as qualitative insights, and helps
stakeholders evaluate the elements that generate profit for the business.
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12. 1. MARGIN RATIO:
• -The first is margin
ratios that help
analyze how much
profit a business is
making or can
make through its
sales.
2. REVENUE RATIO:
• The second is
revenue ratios that
indicate how the
extent of returns a
company can
provide its
shareholders.
Profitability ratios are divided into two broad categories.
Types of Profitability Analysis: 12

13. 01 02
Gross Profit Margin
MARGIN RATIO: REVENUE RATIO:
Operating Profit
Margin or EBIT
Margin
Net Profit Margin
Cash Flow Margin
Return on Assets
Return on Equity
These two ratios are further categorized into the following
types
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14. Gross profit margin is the total profit of a business after deducting operational or
inventory costs.
It represents gross profit of the company in comparison to sales revenue. Gross
profit margin is calculated to analyze how much profit a business is making after
spending on production of goods or services.
If a business has a higher gross profit margin, it means that it can easily cover its
operating and other expenses, and still provide a significant amount of net profit.
Low gross profit margin indicates that the cost of production is high, and profits
earned are low.
A. GROSS PROFIT MARGIN
1. MARGIN RATIO:
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15. This represents how much profit a business has made after deducting
variable costs like wages or the cost of raw material.
This profit is calculated before deducting taxes or interest.
It helps determine whether a company is capable of managing its fixed
costs and can run its operations smoothly.
B. OPERATING PROFIT MARGIN OR EBIT MARGIN
1. MARGIN RATIO:
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16. This ratio represents the actual financial position of a company after the
taxes and interests have been paid.
It indicates a company’s net income or revenue after tax and interest
liabilities are paid off.
This net profit is utilized to pay dividends to the shareholders.
A higher net profit margin indicates that a business is able to keep its
expenses low and is making high profits.
C. NET PROFIT MARGIN
1. MARGIN RATIO:
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17. It helps calculate the ability of a business to convert its sales into cash
flow.
Simply put, cash flow margin represents how much cash or income is a
business able to generate from its operating activities.
A higher cash flow margin indicates that a company is well-equipped to
pay its vendors or suppliers, and purchase capital assets.
1. MARGIN RATIO:
D. CASH FLOW MARGIN
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18. 2. REVENUE RATIO:
A. RETURN ON ASSETS
Return on assets means the profit a company generates from its total
assets.
It compares the profits or net income generated from the assets to the
capital invested by the company.
Return on assets ratio indicates how well a company is utilizing its
economic resources.
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19. B. RETURN ON EQUITY
2. REVENUE RATIO:
Return on equity indicates how much return a company is able to provide
to its equity shareholders.
It indicates the efficiency with which a company is managing the capital
invested by the shareholders, and how much value it is able to create from
it.
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20. PROFITABILITY ANALYSIS TECHNIQUES
Break-Even
Analysis
Benchmarking
Industry
Profitability Ratios
You can analyze business profitability by researching
the standard profitability ratio of businesses in your
industry.
Thus, to set that as a benchmark so that you know
whether you will be able to compete in the market.
Break-even point in business is the amount at which your
total expenditure is equal to your total revenue. This means
that the net profit or net gain is zero.
Moreover, break-even analysis is one of the best strategies
for profitability analysis as it helps you understand the
minimum revenue you need to generate in order to sustain
your business.
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21. Understand Where Your Profits Come From
Do a Cost Analysis
Optimize Your Team’s Productivity
Create a Budget
Control measures for Profitability:
2
3
4
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22. Research Your Target Market
Revamp Your Product Offers
Expand Your Reach & Target
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23. 1. UNDERSTAND WHERE YOUR PROFITS COME FROM
By learning to read and interpret your financial statements. The balance sheet,
income statement, and statement of cash flows provide insights into where your
money comes from and where it goes.
2. DO A COST ANALYSIS
Before making any changes to your product line and deciding on purchasing
property, plant, or equipment, do a cost analysis and budget to see if and
when the new venture or investment will turn a profit.
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24. 3. OPTIMIZE YOUR TEAM’S PRODUCTIVITY
4. CREATE A BUDGET
By effective functioning machinery and equipment .
By following appropriate set strategy and plans.
By having well-trained staff/personnels.
Creating a budget lets you know where you are currently and where
you are heading. Budgets allow to plan ahead and make better
financial decisions.
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25. 5. RESEARCH YOUR TARGET MARKET
Survey your customers as to their wants and needs and then research ways that you
can meet them. Minor improvements to an existing product or service may allow
you to raise your price substantially. Be aware of your competition to stay one step
ahead. Be aware of materials in development so you can incorporate them into your
product. Look at your advertising and social media strategies and determine where
to improve.
6. REVAMP YOUR PRODUCT OFFERS
Improve your product offerings by presenting them in a fresh new
way. You could try bundling products for a lower price than
purchasing them separately.
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26. 7. EXPAND YOUR REACH & TARGET
Expand your customer base by offering products to a new market or expanding
your product line to reach a new audience. Also, upsell and cross-sell to your
existing profitable customers.
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27. IN GENERAL SUMMARY:
• Profitability and profit are metrics that are used to analyze the
financial success of a company.
• Profitability refers to the extent to which a company earns a profit.
• Companies can determine profitability through a number of factors,
such as expenses, demand, productivity, and competition.
• Profitability is commonly expressed as a ratio, such as the gross profit
margin, net profit margin, operating margin, or EBITDA.
• While profitability is a concept, profit is an absolute amount, which
means it is the total amount of income or revenue earned above any
costs or expenses.
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28. TOPIC: B. Demands and
Challenges
UNIT – IV Enterprise Growth and Networking 28

29. Definition:
In economics, Demand is the quantity of a good that consumers are willing and able to
purchase at various prices during a given time.
By Prof. Hibdon, “Demand means various quantities of a good that would be purchased
per time period at different prices at a given market.”
 Demand showcases the inclination of customers towards purchasing a product or
service at a given price in any marketplace.
 It is important to understand the market demand and the desires of people before
introducing a product or service to consumers.
 While it is essentially the amount of a specific product or service that consumers are
collectively willing to buy at a particular price range, it is also the number of
consumers willing and ‘able’ to buy that product or service.
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30.  This is when we learn that consumer desire is not the same as consumer
demand. The price of a product or service is directly proportional to its
demand.
 So, for instance, the higher the demand for a product, the higher its price.
 Similarly, the lower the demand, the lesser the price.
 Young or aspiring entrepreneurs can conduct extensive research on market
demand to determine which product or service will be profitable and make a
good investment.
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31. As a business, you need to understand the different types of demand to be able to best
anticipate how much product you need.
Demand characteristics provide a picture of how well the industry is thriving and offers ideas
as to where new service can be introduced.
The following list details seven types of demand in economics:
1)Price Demand
2)Income Demand
3)Cross Demand
4)Individual And Market Demand
5)Joint Demand
6)Composite Demand
7)Direct And Derived Demand
Types of Demand:
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32. 1. Joint demand:
Joint demand is the demand for complementary products and services. These can
be products that are accessories for others or that people commonly purchase
together. For example, Printer and Printer Ink.
2. Composite demand:
Composite demand happens when there are multiple uses for a single product.
For example, Micro Crystalline Cellulose used as Absorbent, binder and diluent
in tablet / capsule , suspending agent.
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33. 3. Short-run and long-run demand:
 Short-run demand refers to how people will immediately react to price changes
while elements are fixed.
 For example, if the demand for a product drastically decreases and a
manufacturer has high overhead costs, they have no choice but to absorb the
profits lost. Over time, or in the long run, companies have a chance to adjust to
the new situation by decreasing labor or increasing prices and supplies.
4. Price demand:
 Price demand relates to the amount a consumer is willing to spend on a product
at a given price. Businesses use this information to determine at what price
point a new product should enter the market.
 Consumers will buy items based on their perception of that product's value.
Price elasticity refers to how the demand will change with fluctuations in price.
 Example: offer given by Medplus
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34. 5. Income demand:
As consumers make more income, quantity demand increases. This means people
will buy more overall when they earn more income.
Tastes and expectations also change with an increase in income, reducing the size of
one market and increasing the size of another.
Consumers will often buy a product or service because it is what they can afford but
may deem it lower quality. The demand for those lower-quality products will
decrease as income increases.
Example: Daily necessities
6. Competitive demand:
 Competitive demand occurs when there are alternative services or products a
customer can choose from. From a business's perspective, they can use
fluctuations in the price of their competitors to determine how their own will sell.
 An example of this is between name-brand and store-brand(Generic) medicine. If
a consumer prefers a name brand but it is out of stock or the price increases
significantly, the (Generic) store brand will see a rise in sales.
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35. 7. Direct and derived demand:
 Direct demand is the demand for a final good. Food, clothing and cell phones are an
example of this. Also called autonomous demand, it's independent of the demand for other
products.
 Derived demand is the demand for a product that comes from the usage of others.
 For example, the demand for pencils will result in the demand for wood, graphite, paint
and eraser materials. In this example, the demand for wood is dependent on the demand for
its uses.
 Derived demand is similar to joint demand because of its connection to other products. It is
different from joint demand because it is dependent on the final product to generate a need.
Without the need for those end products, there is no demand for the intermediate product.
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36. 1. The substitution effect
2. Consumers tastes and preferences
3. Advertisement and trends
4. Income and number of consumers
5. Future price expectations
6. Weather conditions & credit facilities and
awareness
Factors which impact Demand:
Although the market demand is essentially the collective ability of the
consumers to purchase a product or service, various factors impact the
said demand. A few important ones are as follows:
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37. 1. The substitution effect:
Most products in the market have a similar substitute or a complementary
product.
The prices of these products and services also have an impact on the market
demand.
For example, if your product is Paracetamol Tablet ( Panadol® by GSK
Group) , and the price of other Paracetamol Tablet (Panamax® by Sanofi )
goes down, then the demand for your product, i.e. your tablet , will go down as
many people will switch to the more economical substitute — Tablet
(Panamax® by Sanofi ) .
Factors which impact Demand:
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38. 2. Consumer’s tastes and preferences:
 In an objective market, the demand is usually only dependent on the consumers’
ability and desire to buy a good.
 In a realistic marketplace, however, the taste and preferences of customers play an
essential role.
 Let’s take the example of Syrup and Tablet . These are not new in the market per
se.
 For Geriatrics Patient Compliance we mostly prefer to choose Syrups (Liquid
Oral) over Tablet (Solid Dosage Form)
Factors which impact Demand:
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39. 3. Advertisement and trends:
 These play a significant role in market demand. Just as when the any brand
became trendy, their prices went up.
 Let’s understand through the example of Whey Proteins . Protein has been an
integral part of diet .
 Recently, in the last decade or so, Supplementary Nutrient items has been
advertised as a superfood. Suddenly, their demand for shot up. This is not
because of the steady market demand but by virtue of advertisements, which has
made it a trending item, causing higher demand, leading to a rise in its price.
Factors which impact Demand: 39

40. 4. Income and number of consumers:
 The sum of individual demands creates market demand as a whole. Therefore, the
population of a place plays a vital role in market demand.
 When an item becomes scarcely demanded, it becomes a luxury item.
 Another clearly understood factor affecting the market demand is the income of the
population.
 The purchasing power of all the consumers will have a directly proportional impact on
the market demand for a product or service.
 Example : Cosmetic Product Demand is much more than any other Pharmaceutical
Product. Thus , lead to the Owner of Pharmaceutical Industry generally prefer
manufacturing of Cosmetic Product over any other Pharmaceutical product.
Factors which impact Demand: 40

41. 5. Future price expectations:
 The expectations of a rise or fall in the price of a particular product or service can
significantly impact the market demand.
 For example, if people believe for some reason that the price of gold is going to increase
in the future, then the present market demand for gold will go up.
 Similarly, the expectation that vacationing in Goa will be expensive in December may
cause an increase in demand for hotels and flights in June or July.
Factors which impact Demand:
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42. 6. Weather conditions & credit facilities and awareness:
 In a cold place such as some parts of Canada, the demand for warm
clothes will always be high instead of swimsuits.
 Interestingly, the availability and awareness of credit services also
play a role in the market demand as good credit services increase
consumers’ purchasing capability and, therefore, their demand.
Factors which impact Demand:
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43. Challenges Regarding Enterprise
Growth and Networking
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44.  Starting a business is full of exciting challenges and potential learning
opportunities gained from the risks that come with it.
 Entrepreneurship can provide freedom, wealth, and the ability to build
your ideal lifestyle.
 But there are also many challenges of entrepreneurship that can hinder
you from achieving those goals, and even make entrepreneurship more
difficult than your previous life.
 All businesses have their own unique set of challenges that they must
face. It’s how you identify and address those problems that determine
your company’s success.
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45. 45
To those obstacles that your face while managing a booming business,
we like to call them challenges rather than problems. A problem is a
situation or concern that needs to be rectified whereas a challenge is an
opportunity for business growth.
There are many reasons why you should take the time to solve business
challenges:
To improve efficiency and productivity
To increase sales and revenue
To reduce costs
To improve customer satisfaction

46. 46
Solving business challenges is essential for business growth. It
allows you to identify areas that need improvement and take
steps to improve them.
Additionally, solving business challenges gives you a chance to
show your employees that you’re committed to making the
company better.
This can boost morale and encourage them to work harder.

47. Challenges to Enterprise Development:
1. Selecting a service or product
2. Developing a sales strategy
3. Establishing starting funds
4. Maintaining a budget
5. Sustaining revenue
6. Staffing the organization
7. Managing employees
8. Expanding the business
9. Managing time
10.Maintaining confidence
11.Collaborating with partners
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48. 1. Selecting a service or product:
 An entrepreneur may have the skills and passion to start a company, but one important factor
in starting a business is deciding what to sell.
 To start, they may identify a demand in their community they could meet.
 A marketing firm or freelance researcher may help them conduct market research to discover
what needs there are and which ones they have the resources to address.
 For example, an entrepreneur may learn that the people in their community drive out of town
to get massages, so they know there is a local demand for a spa that they could fill.
2. Developing a sales strategy:
 Though an entrepreneur may recognize an opportunity in a certain community, they might also
research the best way to sell to that community.
 They may hire a professional to create a marketing plan or make one themselves.
 To do this, they can assess who their target audience is and what strategy might best reach
them.
 For example, if an entrepreneur opens a business in a rural community where they know many
people listen to the radio, they may develop a digital ad to broadcast locally.
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49. 3. Establishing starting funds:
 For entrepreneurs who start with lower capital, there are ways to earn funding to get
started.
 They may begin with a traditional bank loan or a federal small business loan. If they
plan to provide a product or service that they know has significant demand already,
they might start a fundraising campaign.
 For entrepreneurs who would rather use a self-fueled growth model, they may start
by targeting a small audience and slowly building to serve larger client bases.
4. Maintaining a budget:
 Because running a company can be unpredictable, an entrepreneur can stay prepared
by carefully maintaining a budget.
 They may do this by prioritizing efficient marketing strategies and allocating the rest
according to their unique needs. Assessing which expenses are necessary may help
entrepreneurs adjust their funds to better prepare for changes.
 For example, they may observe that there is a more affordable manufacturer they can
use and reallocate those savings to address higher utility costs.
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50. 5. Sustaining revenue:
 It's important for entrepreneurs to manage their organization's money carefully to
account for any potential delay in invoice payments.
 Aside from budgeting, entrepreneurs may charge a down payment to ensure they
can afford expenses until they receive full payment.
 By sending invoices as early as possible and requesting payment as soon as they
complete projects, entrepreneurs can secure funding to keep operations running
efficiently.
6. Staffing the organization:
 To make sure that they hire people who care about their organization's mission and
will work hard, entrepreneurs may oversee the hiring process.
 They may publish highly detailed listings to attract candidates whose
qualifications match the organization's specific needs.
 Before interviewing anyone, they can develop questions to assess if the candidate
might be a good fit for their organization and if the role can help them in their
career goals.
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51. 7. Managing employees:
 As the creators and leaders of an organization, entrepreneurs guide their employees on how
to best carry out the organization's goals.
 They can achieve this by developing clear, detailed instructions for each role. When an
entrepreneur effectively communicates the goals of the organization, employees may better
understand what they expect and what they're working toward.
 For example, if the founder initiative tells employees the story of why they started the
company, they may feel more inspired to work toward the common goal of providing clean
water.
8. Expanding the business:
 After an entrepreneur establishes their business, they may reach a level of success where
they want to expand.
 This stage of managing a business entails many considerations, including figuring out a way
to address greater demand, researching new partners and reassessing their role in the
company.
 An entrepreneur may revise existing processes to better meet the company's needs. For
example, if a consulting firm uses software built for a smaller client list, they may upgrade
to one that betters suits a wider client base.
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52. 9. Managing time:
 Starting a new business and managing it creates many periodic tasks, so
entrepreneurs may create deadlines to help with prioritizing their obligations.
 Because their role can encompass many responsibilities, entrepreneurs have several
approaches they can take to manage time.
 One strategy they can use is creating goals for themselves and others in the
organization. They may assess which tasks are absolutely necessary and which they
can delegate.
10. Maintaining confidence:
 It can take a lot of confidence to start a company and just as much to run one. It's
important for entrepreneurs to maintain confidence so they can lead effectively and
make appropriate business decisions.
 Entrepreneurs may set long- and short-term goals to track and reflect on their
success.
 Keeping a community of supportive leadership and employees may also help.
When an entrepreneur is more confident, they may feel more prepared to address
challenges.
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53. 11. Collaborating with partners:
 For entrepreneurs whose organization is doing well, they may consider
partnering with other professionals or businesses.
 Though this may help them allocate leadership responsibilities and
increase funding, there are many considerations.
 First, entrepreneurs can assess areas of improvement, whether a
partnership might help and also how their skills and personalities might
combine to benefit the organization.
 It's important to establish the terms of the partnership with a lawyer to
protect all parties' interests.
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54. Challenges faced by new Entrepreneurs:
 Entrepreneurs have to face numerous challenges on the road to success, in
particular with regard to access to finance.
 All entrepreneurs will at some point feel overwhelmed with the many
responsibilities that fall on their shoulders.
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55. The common challenges faced by entrepreneurs are:
1. Finance
2. Business Management
3. Marketing the Business
4. Finding the Right Business
5. Unforeseen Business Challenges and Expenses
6. Finding Good Customers
7. Keeping Up With Industrial Changes and Trends
8. Focus
9. Finding Good Employees
10.Assembling a Business Team
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57. Thankyou for
Attending
Any Doubt ?