Question

Q2. 'Profit is the maximum value a company can distribute during the year and still expect to be worth as much at the end of the year as it was at the beginning.' Discuss this statement, and comment on its value in measuring profit for decision-making.

Answer 1

We know that a company is established keeping in view the profit motive. The company will operate only if the profits are always greater than the costs. The firm set certain price for it's products, the firm also keeps in view the costs of production. When the firm is making profits which are more than it's costs than we can say that it is earning profits.

The profits which a company earns from it's business operations, distributes it to the workers, pay for the capital etc. The profits play an important role for the company. The company always strive for more profits. More profits means that company is making a good deal of sale's for the products or services it produces. Profits play an important role in decision making of the firm. The firm makes important decisions regarding the profits. It makes decisions how the sales increase,. For the fact that sales are directly related with the profits.more sales means more profits.

The company is paying all it's employee from the profits it earn and still have some profits with itself. If profits are less than the costs of production than firm will shut down.We define company value as the worth of a business. You can think of company value as how much it would cost to purchase the business, or a company's selling price.The asset approach calculates all the assets and liabilities of a company in its valuation. The company value then is the assets minus the liabilities. Profits play an important role in determining the competitiveness of a firm.

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