ECONOMICS

COST ACCOUNTING

PERFORMANCE MEASUREMENT

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
Profit is important to businesses because:
A
it improves businesses, cash balances
B
it can be used to measure business size
C
it is a measure of businesses, success
D
businesses need to pay taxes to the government
Explanation: 

Detailed explanation-1: -Profit equals a company’s revenues minus expenses. Earning a profit is important to a business because profitability impacts whether a company can secure financing from a bank, attract investors to fund its operations and grow its business. Companies cannot remain in business without turning a profit.

Detailed explanation-2: -Profits may be the most popular metric of measuring the success of a business venture but it is by no means the only (or the best) method for measuring success. Most start-ups are not profitable at the beginning of operation and many are not profitable for years.

Detailed explanation-3: -We always make a profit each year so we must be successful Profitability is one way of measuring success. You can make a simple profit calculation (profit = price – cost) and judge your success based on that figure.

Detailed explanation-4: -The income statement (also called a profit and loss statement) is the first place to get started. It’s a way to measure the profitability of your business over a specific period of time. Basically, it shows you how much money is coming in and going out.

Detailed explanation-5: -Focusing only on profit without considering a business’ positive impact is outdated. The true measure of the success of a business is its impact on the wellbeing of people and the planet. Wellbeing is the ultimate measure of success. Social and environmental impact can no longer be ignored.

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