Description
it talks about various theories around profit and the difference between profit maximization and Sales maximisation.
Profit maximization
By
mid minooee
Profit definition:
.Profit is a basic concept in market economy. Profit acts as an incentive mechanism for business investment. Higher profits provide incentives for business growth. Profit also acts as an automatic signal for the allocation and reallocation of scarce resources. Profit which is the hub of all economic activities has no precise definition of its own. In fact it is the most controversial topic of economic theory. To get an accurate idea of profit, it is necessary to first distinguish gross profit from net profit.
THE NATURE OF PROFIT:
?
The simplest definition of profit is that it is
?
The excess of revenue over cost
?
. This is a little deceptive, because in practice it is not always easy to decide what revenue is and what cost is. There are also problems arising from changes in the value of property. For example, the value of a building may rise or fall for reasons that have nothing to do with the trade carried on in that building. However at this stage it is convenient to overlook problems of this kind, and keep to the idea of profit as the excess of the revenue
THE NATURE OF PROFIT:Cont..
gained by selling products over the cost of producing ?
those products. Nevertheless this definition does not
satisfy the economist's desire to explain why profit exists and what its economic function really is; and here
we come up against two rather conflicting ideas. On the
one hand there is what might be called the traditional view of profits a payment to a factor of production, just
as wage is the payment to labor or rent the payment to
capital. On the other hand there is the view that profit is surplus which remains when the payments to production factors have all been made.
Difference Between Gross Profit and Net Profit:
? ?
Definition of Net Profit:
? ?
Definition of Gross Profit: Gross profit is the surplus which accrues to a firm when it deducts its total costs in
Net profit is the profit which accrues to an entrepreneur for his functions as an entrepreneur. These functions include risk bearing ability, innovating spirit, bargaining ability
producing products from its
total income received from the sale of goods. In producing goods, a firm incurs explicit costs and implicit costs. In the ordinary language, the term profit is used in the sense of
etc. Net profit is the reward of an entrepreneur for (i) organizing a business and undertaking risk (ii) his bargaining ability with the customers (iii) adopting new techniques of production (iv) monopoly gains if any (v) windfall gains due to sudden rise in the
gross profit.
?
prices of goods.
Different Theories of Profit:
1. Dynamic Theory of Profit:
The dynamic theory of profit was given by J.B. Clark.
According to him profit accrues because the society is dynamic by nature. Since the dynamic nature of society
makes future uncertain and any act, the result of which
has to come in future, involves risk. Thus profit is the price of risk taking and risk bearing. It arises only in a dynamic society which means in a society where changes does not occur i.e. it is static by nature the risk element disappears and hence the profit element does not exist there.
Different Theories of Profit:Cont.
2. Marginal Productivity Theory of Profit According to this theory, profit always equals to the marginal productivity of the entrepreneur. The marginal productivity of the entrepreneur cannot be evaluated in the case of the firm because there is only one entrepreneur in a firm. It is
however can be easily done in an industry where the
number of the firms can be calculated and hence the marginal productivity of various entrepreneurs can be measured. According to this theory the profit depends upon the marginal production. Greater the marginal production greater will be the profit.
Different Theories of Profit:Cont.
3. Wages Theory of Profit:
According this theory the services of the entrepreneur are also classified as labour though of a superior type. These entrepreneurs do a lot of work in organizing the business unit as well. The entrepreneurs in the shape of profit pay to themselves for service just as managers are paid for their services. It means that profit is a wage for the entrepreneur for the services rendered by them.
Different Theories of Profit:Cont.
4. Un-Certainty Breaking Theory of Profit
Profit is the reward for uncertainty bearing and not
the risk bearing”. Prof. Knight has regarded uncertainty bearing as a factor of production. Knight’s theory classifies the position that profit arises because of the joint action
of uncertainty bearing and capital.
Different Theories of Profit:Cont.
5. Risk Bearing Theory of Profit:
According to F.B. Hawley, “Profit is reward for risk
bearing which is the most important function of an entrepreneur”. Hawley believes that risks are unpleasant and therefore no one likes to bear it, until and unless some reward is insured. Profit is a
reward for bearing these risks.
Profit maximization:
A process that companies undergo to determine the
best output and price levels in order to maximize its return.
The company will usually adjust influential factors such as production costs, sale prices, and output levels as a way of reaching its profit goal. There are two main profit maximization methods used, and they are Marginal CostMarginal Revenue Method and Total Cost-Total Revenue Method. Profit maximization is a good thing for a company, but can be a bad thing for consumers if the company starts to use cheaper products or decides to raise prices.
SALES MAXIMIZATION
V/S
PROFIT MAXIMIZATION:
Sales maximization is an approach to business where the company's primary objective is to generate as much revenue as possible. Profit maximization is an objective where the company intends to generate the highest net income over time.
Difference Between Sales Maximization & Profit Maximization
? ?
Revenue vs. Profits The main difference between sales maximization and profit maximization is the financial intention. Sales, or revenue, is the generation of cash flow through the sale of goods and services. A goal of maximizing revenue does not necessarily produce profits, because companies often sell products at a loss to generate revenue. Maximizing profits typically requires that you not only sell a significant volume, but that you also maintain reasonable profit margins. Timeliness One of the more prominent differences between sales and profit maximization is time orientation. Sales maximization objectives are typically intended to produce as much revenue as possible in a short time frame. Companies often have this objective to build their customer base, to steal customers from competitors, to drive quick cash flow and to sell excess inventory. Profit maximization is a longer-term objective where the company intends to position itself for long-term viability and success.
? ?
Difference Between Sales Maximization & Profit Maximization
? ?
? ?
Recurrence Profit maximization theoretically remains the primary longterm objective of any for profit business. However, sales maximization objectives can come and go. Companies use sales objectives for various reasons and at different times. The launch of the business, near the end of a quarter or fiscal year, during typically slow times, when the business is slumping and when excess inventory builds up are common points at which a company may introduce sales maximization goals for a temporary period. Still, the long-term focus is earning income. Risks Risks of profit maximization objectives are somewhat limited. The business does have to work diligently to build the perception of value in the market. Sales maximization goals do pose significant risks to long-term profit potential. Companies advertise to build the sense of worth customers have for their products. Constantly cutting costs to drive revenue creates a price orientation in the market. If a business mismanages sales objectives, it can restrict the success of long-term profit maximization.
Thank you
doc_785516781.pptx
it talks about various theories around profit and the difference between profit maximization and Sales maximisation.
Profit maximization
By
mid minooeeProfit definition:
.Profit is a basic concept in market economy. Profit acts as an incentive mechanism for business investment. Higher profits provide incentives for business growth. Profit also acts as an automatic signal for the allocation and reallocation of scarce resources. Profit which is the hub of all economic activities has no precise definition of its own. In fact it is the most controversial topic of economic theory. To get an accurate idea of profit, it is necessary to first distinguish gross profit from net profit.
THE NATURE OF PROFIT:
?
The simplest definition of profit is that it is
?
The excess of revenue over cost
?
. This is a little deceptive, because in practice it is not always easy to decide what revenue is and what cost is. There are also problems arising from changes in the value of property. For example, the value of a building may rise or fall for reasons that have nothing to do with the trade carried on in that building. However at this stage it is convenient to overlook problems of this kind, and keep to the idea of profit as the excess of the revenue
THE NATURE OF PROFIT:Cont..
gained by selling products over the cost of producing ?
those products. Nevertheless this definition does not
satisfy the economist's desire to explain why profit exists and what its economic function really is; and here
we come up against two rather conflicting ideas. On the
one hand there is what might be called the traditional view of profits a payment to a factor of production, just
as wage is the payment to labor or rent the payment to
capital. On the other hand there is the view that profit is surplus which remains when the payments to production factors have all been made.
Difference Between Gross Profit and Net Profit:
? ?
Definition of Net Profit:
? ?
Definition of Gross Profit: Gross profit is the surplus which accrues to a firm when it deducts its total costs in
Net profit is the profit which accrues to an entrepreneur for his functions as an entrepreneur. These functions include risk bearing ability, innovating spirit, bargaining ability
producing products from its
total income received from the sale of goods. In producing goods, a firm incurs explicit costs and implicit costs. In the ordinary language, the term profit is used in the sense of
etc. Net profit is the reward of an entrepreneur for (i) organizing a business and undertaking risk (ii) his bargaining ability with the customers (iii) adopting new techniques of production (iv) monopoly gains if any (v) windfall gains due to sudden rise in the
gross profit.
?
prices of goods.
Different Theories of Profit:
1. Dynamic Theory of Profit:
The dynamic theory of profit was given by J.B. Clark.
According to him profit accrues because the society is dynamic by nature. Since the dynamic nature of society
makes future uncertain and any act, the result of which
has to come in future, involves risk. Thus profit is the price of risk taking and risk bearing. It arises only in a dynamic society which means in a society where changes does not occur i.e. it is static by nature the risk element disappears and hence the profit element does not exist there.
Different Theories of Profit:Cont.
2. Marginal Productivity Theory of Profit According to this theory, profit always equals to the marginal productivity of the entrepreneur. The marginal productivity of the entrepreneur cannot be evaluated in the case of the firm because there is only one entrepreneur in a firm. It is
however can be easily done in an industry where the
number of the firms can be calculated and hence the marginal productivity of various entrepreneurs can be measured. According to this theory the profit depends upon the marginal production. Greater the marginal production greater will be the profit.
Different Theories of Profit:Cont.
3. Wages Theory of Profit:
According this theory the services of the entrepreneur are also classified as labour though of a superior type. These entrepreneurs do a lot of work in organizing the business unit as well. The entrepreneurs in the shape of profit pay to themselves for service just as managers are paid for their services. It means that profit is a wage for the entrepreneur for the services rendered by them.
Different Theories of Profit:Cont.
4. Un-Certainty Breaking Theory of Profit
Profit is the reward for uncertainty bearing and not
the risk bearing”. Prof. Knight has regarded uncertainty bearing as a factor of production. Knight’s theory classifies the position that profit arises because of the joint action
of uncertainty bearing and capital.
Different Theories of Profit:Cont.
5. Risk Bearing Theory of Profit:
According to F.B. Hawley, “Profit is reward for risk
bearing which is the most important function of an entrepreneur”. Hawley believes that risks are unpleasant and therefore no one likes to bear it, until and unless some reward is insured. Profit is a
reward for bearing these risks.
Profit maximization:
A process that companies undergo to determine the
best output and price levels in order to maximize its return.
The company will usually adjust influential factors such as production costs, sale prices, and output levels as a way of reaching its profit goal. There are two main profit maximization methods used, and they are Marginal CostMarginal Revenue Method and Total Cost-Total Revenue Method. Profit maximization is a good thing for a company, but can be a bad thing for consumers if the company starts to use cheaper products or decides to raise prices.
SALES MAXIMIZATION
V/S
PROFIT MAXIMIZATION:
Sales maximization is an approach to business where the company's primary objective is to generate as much revenue as possible. Profit maximization is an objective where the company intends to generate the highest net income over time.
Difference Between Sales Maximization & Profit Maximization
? ?
Revenue vs. Profits The main difference between sales maximization and profit maximization is the financial intention. Sales, or revenue, is the generation of cash flow through the sale of goods and services. A goal of maximizing revenue does not necessarily produce profits, because companies often sell products at a loss to generate revenue. Maximizing profits typically requires that you not only sell a significant volume, but that you also maintain reasonable profit margins. Timeliness One of the more prominent differences between sales and profit maximization is time orientation. Sales maximization objectives are typically intended to produce as much revenue as possible in a short time frame. Companies often have this objective to build their customer base, to steal customers from competitors, to drive quick cash flow and to sell excess inventory. Profit maximization is a longer-term objective where the company intends to position itself for long-term viability and success.
? ?
Difference Between Sales Maximization & Profit Maximization
? ?
? ?
Recurrence Profit maximization theoretically remains the primary longterm objective of any for profit business. However, sales maximization objectives can come and go. Companies use sales objectives for various reasons and at different times. The launch of the business, near the end of a quarter or fiscal year, during typically slow times, when the business is slumping and when excess inventory builds up are common points at which a company may introduce sales maximization goals for a temporary period. Still, the long-term focus is earning income. Risks Risks of profit maximization objectives are somewhat limited. The business does have to work diligently to build the perception of value in the market. Sales maximization goals do pose significant risks to long-term profit potential. Companies advertise to build the sense of worth customers have for their products. Constantly cutting costs to drive revenue creates a price orientation in the market. If a business mismanages sales objectives, it can restrict the success of long-term profit maximization.
Thank you
doc_785516781.pptx