BUSINESS AND

PROFITS AND ITS

ROLE IN SOCIETY
BACKGROUND
• A business (also called a company, enterprise or
firm) is a legally recognized organization designed
to provide goods and/or services to consumers.
Business are pre dominant in capitalist economies.
Most business are privately owned. A business is
typically owned and formed to earn profit that will
increase the wealth of its owners and growth the
business itself. The owners and operators of a
business have one main objectives i.e receipt or
generation of a financial return in exchange of work
and acceptance of risk. notable exceptions include
cooperative enterprises. Businesses can also be
formed non-for-profit or be state owned.
Different measures
of profit in a firm
• Gross profit=Gross profit is the profit a
company makes after deducting the costs
associated with making and selling its
products, or the costs associated with
providing its services. Gross profit will
appear on a company's income statement
and can be calculated by subtracting the
cost of goods sold (COGS) from revenue
(sales). These figures can be found on a
company's income statement.
• Operating profit=Operating profit is the
income earned from the core operations of a
business, excluding any financing or tax-related
issues. The concept is used to investigate the profit-
making potential of a business, excluding all
extraneous factors. Operating profit information is
particularly valuable when monitored on a trend
line, to see how a business is performing over a
long period of time.
• gross profit (less) all operating expenses. It is also
known as Earning Before Interest and Taxes EBIT.
Operating Profit Before Interest and Taxes OPBIT or
simply profit before interest and taxes PBIT.
• Net profit=profit after tax(unless some distinction
about the treatment of extraordinary expenses is
made). In the US the term net income is commonly
used. Income before extraordinary expenses
represents the same but before adjusting for
extraordinary items.
• (NET) Profit before tax PBT equals operating profit less
interest expense (but before taxes). It is also know as
Earning Before Interest EBT, net operating income
before taxes or simply Pretax Income.
• Net profit represents the number of sales dollars
remaining after all operating expenses, interest, taxes
and preferred stock dividends (but not common stock
dividends) have been deducted from a company's total
revenue.
 Some economist
define further types
of profit;
 Abnormal profit
• If a firm makes more than normal profit it is called super-
normal profit. Abnormal profit is also called economic
profit, and supernormal profit, and is earned when total
revenue is greater than the total costs. Total costs include
a reward to all the factors, including normal profit. This
means that, when total revenue equals total cost, the
entrepreneur is earning normal profit, which is the
minimum reward that keeps the entrepreneur providing
their skill, and taking risks.
• The level of Abnormal profits available to a firm is largely
determined by the level of competition in a market – the
more competition the less chance there is to earn super-
normal profits.
Subnormal profit
• Sub-normal profit is any profit
less than normal profit – where
price < average cost. If a firm is
making an economic loss, it
may decide to leave a market in
the long run in search of higher
expected returns.
 Monopoly profit(super
profit)
• If any firm doing business within a competitive situation
tries to raise prices significantly higher than the Marginal
cost of producing the product, it will lose all of its
customers to either other existing firms that charge lower
prices, or to a new firm that will find it profitable to use a
lower price (closer to its marginal cost) to take customers
away from the firm charging the higher price. But since
the monopoly firm does not have to worry about losing
customers to competitors, it can set a Monopoly price that
is significantly higher than its marginal cost, allowing it to
have an economic profit that is significantly higher than
the normal profit that is typically found in a perfectly
competitive industry.The high economic profit obtained by
a monopoly firm is referred to as monopoly profit.
Optimum profit
• this is the "right amount" of
profit a business can achieve. in
business, this figure takes
account of marketing stategy,
market position, and other
methods of increasing returns
above the competitive rate.
Organization
Approach
towards
 Shareholder
• 1. Narrow Focus, driven by
numbers and things that have
been qualified and measured
• 2.Executive Management may
react to valuations in dramatic
ways (merger, layoffs,etc.)
• 3. Performance evaluation tends
to be financially focused with
little emphasis on intangible
drivers of performance
• 4.Source of value tend to be
isolated systems, fragmented and
not coherent
• 5.Slow to respond to change; new
ideas are not
Stakeholder
• 1.Suistainable, competitive
thinking that tends to be
visionary
• 2.Multi-view of the
organization regardless if it is
quantifiable
• 3.Performance evaluation
follow strategic issues, not just
operations.
• 4.Strong value systems across
the entire value-chain,
extending to external
stakeholder
• 5.Easy flow of new ideas and
innovation (very change
oriented)
• 6.Managements tends to
quickly embrace a quick fix
solutions, sometimes adopting
the latest fad despite the fact
that it may not fit or it is not
well-tested
• 7.People who create value
may be viewed as "too radical"
and somewhat out-of-step
• 8.The bottomline focus is
earnings
• 9.Traditional Approaches to
growth-allocate resources to
marketing, acquire other
companies, control costs, etc.
• 10.Business success is what we
create for our shareholders
• 6.Management does not
embrace quick fix solutions;
instead opting to avoid paying a
heavy price
• 7.People who create value are
mostr likely to advance within
the organization
• 8.The bottom line focus is on
value-what value are we adding
• 9.Growth through the
intangibles-relationships,
competitiveness,knowledge
workers; thinking in terms of
opportunities for growing the
business around core
competencies
• 10.Business success is what we
create for all stakeholders, not
just shareholders
 Role of Business
• The basic objectives of businesses is to develop,
produce and supply goods and services to
customers. This has to be done in such a way as
to allow companies to make a profit, which in
turn demands far more than just skills in
companies own field and processes. Companies
improve their resources by developing material
and ideas. The goods and services produced by
developing material and ideas. The goods and
services produced must see demands made by
customer.
 Businesse/
Companies
benefits society
by;
• 1.Supplying goods and services that customer cannot,
or do not want to produce themselves.
• 2.Creating jobs for customers,suppliers, distributors and
co-workers and make money to support themselves and
their families, pay taxes and use their wages to buy
goods and services.
• 3.Continually developing new goods, services and
processes.
• 4.Investing in new technologies and in the skills of
employees.
• 5.Building up and spreading international standards, e.g
for environmental practice.
• 6.Spreading "good practice" in different areas, such as
the environment and workplace safe.
 Triple Bottom line Concept for
measuring Organizational Success
• The Triple Bottom line (TBL/3BL) and also know as
"People, Planet, Profit". Captures an expanded spectrum
of values and criteria for measuring organizational (and
societal) success: economic, ecological and social.
• The concept of TBL demands a company's responsibility to
be stakeholder rather than shareholders. In this case
"stakeholders"refers to anyone who is influenced, either
directly or indirectly by the action of the firm. According
to the shareholder theory, the business entity should be
used as a vehicle for coordinating stakeholder interests,
instead of maximizing shareholder (owner) profit.
• "People"(Human capital) pertains
to fair and beneficial business
practices toward labor and the
community and region in which a
corporation conducts its business. A
TBL company conceives a reciprocal
social structure in which the well-
being of corporate labor and other
stakeholder interests are
independent.
•"Planet" (Natural capital)
refers to sustainable
environmental practices. A
TBL company endeavors to
benefit the natural order as
much as possible or at the
least do no harm and curtail
environmental impact.
• "Profit" is the economic value
created by the organization after
deducting the cost of all inputs,
including the cost of the capital
tied up. In the original concept,
within a sustainability framework,
the "profit" aspects needs to be
seen as the real economic benefit
enjoyed by the host society.