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Example research essay topic: Point Of View Gross Income - 1,639 words

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Profit is an important resulting index of companys activity. It is the main indicator of the effect received as a result of the companys operating at the market. Profit can be determined as the difference between incomes and expenses. From economical point of view, profit is the difference between receipts and disbursements, from administrative and accounting point of view profit means the difference between property status of a company at the beginning and at the end of an accounting period. There are two concepts of profits in modern economic studies, according to which economic and disposable profits can be considered. At that, accounting or book profit, as the result of marketing and sales of goods, services, materials and other property together with results of other trade activity, and taxable profits can be classified.

If to think about the purpose of establishing of an enterprise, profits can be better considered as a part of value added as a result of manufacturing and economic activity, including expenses of human labor and capital accumulations, which were created only from sales of products, performed works, rendered services. At the same time, realization of the other funds and other trade operations are forming income. The role of profit for every individual company is very important. At first, gained profits are the main criteria and index of effectiveness of business activity of the company.

Basically, definite amount of profit has to satisfy needs of all involved individuals and organizations, such as property owners, creditors and employees, to a definite degree. The majority of financial resources of an enterprise are formed from profits gained from trade operations. At second, profit plays stimulating role. Directions of decisions in dividend or investments policy of a company, in necessity of renovations of funds and technical innovations are dependent on profit of the company.

All sorts of stimulation and social privileges for employees can be granted from profits, it is also a source for supporting of social organizations. At third, profit is a source of incomes of budget organizations of different levels. Profits feed budget as taxes or financial sanctions and can be used with different purposes, which are determined by planned budget and legislation. The level of sales and the amount of profits as a result are under influence of a great deal of different factors, which are in close connection between each other, and can be classified as main and secondary, and also as internal and external. Internal factors include factors of resources (their amount, content, costs, terms of exploitation) and also factors of retail turnover, such as volumes and structure of retail turnover, promoting of the goods, arrangement of trade and technological process of selling goods, number and qualification of personnel, form of economical compensation to them, labor capacity, availability of monetary and labor resources, amount of funds, capital productivity, price policy, depreciation of capital, companys business reputation, etc.

The main external factors determining companys sales policy are: absorption of the market and demand of the consumers, development of competition, price policy of suppliers of the goods, prices of transportation, insurance, warranty, repair and other services, development of trade-unions and other social organizations in this branch, state regulation of trade activity, etc. The main purpose of business activity of any company or enterprise if maximization of profits. Opportunities of gaining profits are limited, first, with costs of manufacturing, and second, with the demand on the product at the market. To control profit, its important to know its structure, and to determine an influence of each factor on its decrease or increase. The main limiting factor for receiving profits is costs.

Costs can be derived as total sum of all the payments which company has to make to the owners of resources, including own, to attract those resources for manufacturing process. Such costs, as compensation for employees and personnel, spending for raw and other sorts of materials, payments to banks and organizations are called as external costs, as all the payment to independent suppliers of resources. Internal costs are expenses of the resources belonging to definite enterprise. Internal costs include normal profit. Fixed costs (personnel salaries, insurances, rent, etc. ) are not dependent on volumes of manufacturing; they are connected with obligations of the firm as manufacturer and take place even if the firm doesnt produce anything. Variable costs (costs of materials, energy, fuel, labor force) directly dependent on volumes of manufacturing, they increase together with increasing of production.

Total costs of manufacturing are the sum of fixed and variable costs, they must be minimized for receiving of maximum profits. Total costs increase together with increasing of volumes of manufacturing, also they are under influence of law of diminishing returns, as a result growth slows down (effectiveness of employment of resources), but after some time growth increases. Marginal costs are connected with manufacturing of an additional item of the product, in other words, they show how much total costs will be increased by manufacturing of one more item of product. This index is very important for a firm, because marginal costs can be controlled and show should it increase or decrease volumes of manufacturing.

Average costs indicate costs of the company per item manufactured. This index shows reasonability of manufacturing, if the price is lower than average costs, the firm receives negative profits and can be closed. It is very important to devote good accounting resources for analyzing and comparing of profits. There is an amount of indexes, connected with profit and profitability, which must be followed and controlled by financial managers in every accounting period. Gross income, taxable profit, net profit have to be determined according to data of the results of trade activity and compared with preliminary planned amounts and also with the amounts received in previous periods. Such index as gross marginal profit shows how much of monetary profit was received by a company per every each dollar spent for manufacturing.

Index of profitability of sales can be determined as the ratio of sales profit to net costs of product manufacturing. Profitability of item (also called as profitability of turnover) can be considered as ratio of profit received from the item of product (difference between price and costs of the item) to its costs. In other words, profitability of an enterprise can be taken as ability of the latter to increment of invested capital. The main tasks of analyzing of profits and profitability are the following: to estimate dynamic of profitability indexes from the beginning of the year or longer accounting period, their correspondence to planned indexes, to determine and estimate main factors, which influence on these indexes and their variation regarding to planned ones; to determine and study reasons of losses and failures, caused by mistakes in management and other faults in manufacturing or economic activity of the company; to determine and estimate funds and reserves for possible increasing of incomes and profits of the company. Apart of analyzing of profit related indexes, financial management of the company has to think, how to maximize profits.

Two most popular and logical ways for this are to increase volumes of production and to decrease costs. Together with these points, the companys management can work in directions of increasing quality of the product, modernization and diversification of manufacturing, increasing of companys share of consumer market, offering extra machinery or premises to other organizations for rent, etc. There are other means to increase profits, such as increasing the assortment of the goods, launching of commercial innovations aimed to increase sales of goods of high demand; absence of fear of commercial risk, implementing of means directed on economy of expenses, etc. Of course, indexes of profits can not be independently considered as the only components of successful operating of a company at the market. The whole business must be conducted by professionals, professional directors and managers must be responsible for tactical and political decisions, professional industrial or financial managers of lower levels must lead their sub ordinaries and create positive working environment for them, and professional employees of lower levels must work over the manufacturing process. For successful business a company must gain a good reputation in front of its customers by producing high quality goods, supporting the sales with promoting means, rendering full services, conducting clear and opened financial, social and charity politics.

As investments for better performance in the future, a company must spend planned funds, formed mostly from profits, for marketing researches, for investments, for increasing of quality of the products and effectiveness of employment of resources, for innovations, for stimulating of employees and personnel. The conclusions of this research are the following. Profits of the company are determined as the difference between gross income and total costs. Profit is an important economic category of companys successful operating at the market; modern economic study considers profit as income gained from factors of manufacturing involved into the process of producing of goods. Profits must be controlled and analyzed, and some organizational means directed on increasing of profits must be planned and carried out at every enterprise. Profits can be maximized at the expense of lowering of costs of manufacturing, improving of product quality and rationalizing of usage of manufacturing factors.

If a company wants to reach success and good results in its activity, it has to control the process of forming, distributing and disposition of profits. Such control includes analysis of profits, its planning and carrying out of permanent means directed on profit maximization. REFERENCES Avery, Christopher and Miller, Nolan (Harvard University) Microeconomic Theory, Part I. , Lectures Notes. Keep, David M. (Princeton University) A Course in Microeconomic Theory.

Princeton University, February 21, 1990. ISBN 0691042640 Malinvaud, Edmond. Lectures on Microeconomic Theory. North Holland, 2 nd reprint 1990 edition.

ISBN 04444876502 TIAN, Guoqiang (Department of Economics, Texas A&M University) Lecture Notes of Microeconomic Theory. Part IV. 2003.


Free research essays on topics related to: gross income, lower levels, point of view, total costs, variable costs

Research essay sample on Point Of View Gross Income

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