"Every business attempts to reap more than what has been invested."
Explain the role of profits in this context.
"Every business attempts to reap more than what has been invested."
Explain the role of profits in this context.
The role of profits in a business are discussed here below :
(a) Incentive: Profit is a strong incentive for an entrepreneur to start and run a business. It provides a stimulus to establish and operate a business. Profit is a return for investing capital and a reward for the labour of an entrepreneur.
(b) Survival of the Enterprise: Profit is essential for the survival of an enterprise. No unit can continue for long if it incurs losses for long. A unit needs replacement of old assets. It has to face an adverse situation in the business. It is the profit which enables a unit to meet various expenditure needs and face situations like recession. Profit is a base for absorbing various shocks.
(c) Growth and Expansion: Using one's own profits for financing expansion and diversification is the best source. Profits are essential for not only expansion but also for attracting more capital from outside.
(d) An indication of Efficiency: Profits are the measure of efficiency of a business. Thus more profits mean higher efficiency. However thus profit should not come through unethical practice only through assuming social responsibilities and ethical practices.
(e) Goodwill: Goodwill is directly proportionate to the rate of profits earned. Higher the profits, higher will be the reputation of business in the market and society. This reputation itself becomes the source of motivation for the entrepreneur to do better and better in his business.
(f) Social Objectives : Profits also help in fulfilling social goods. A business is expected to serve various segments of society such as labour, consumers, owners, government and so on. The workers well expect better wages and consumers want quality goods at reasonable prices. All this will be possible only when a business earns sufficient profits.
The role of profits in a business are discussed here below :
(a) Incentive: Profit is a strong incentive for an entrepreneur to start and run a business. It provides a stimulus to establish and operate a business. Profit is a return for investing capital and a reward for the labour of an entrepreneur.
(b) Survival of the Enterprise: Profit is essential for the survival of an enterprise. No unit can continue for long if it incurs losses for long. A unit needs replacement of old assets. It has to face an adverse situation in the business. It is the profit which enables a unit to meet various expenditure needs and face situations like recession. Profit is a base for absorbing various shocks.
(c) Growth and Expansion: Using one's own profits for financing expansion and diversification is the best source. Profits are essential for not only expansion but also for attracting more capital from outside.
(d) An indication of Efficiency: Profits are the measure of efficiency of a business. Thus more profits mean higher efficiency. However thus profit should not come through unethical practice only through assuming social responsibilities and ethical practices.
(e) Goodwill: Goodwill is directly proportionate to the rate of profits earned. Higher the profits, higher will be the reputation of business in the market and society. This reputation itself becomes the source of motivation for the entrepreneur to do better and better in his business.
(f) Social Objectives : Profits also help in fulfilling social goods. A business is expected to serve various segments of society such as labour, consumers, owners, government and so on. The workers well expect better wages and consumers want quality goods at reasonable prices. All this will be possible only when a business earns sufficient profits.
