Retained profit:
Retained profit is when the money is re-invested back into the business leading to improve or expand the business. This is when the business generates profit, but it is kept in the corporate rather than dividing among the shareholders or between the partners. This finance is considered as long-term source of investment for an organisation. Retained profit has advantages and disadvantages. Advantages for this type of finance are;
a) The first benefit is that it is cheap but not free because the profit is re-invested back into the business leading to progress and succeed. This is the opportunity cost of the cost of capital for shareholders of leaving profits in the business and to aim for higher returns on investments.
b) The second benefit is that it is very flexible because the organisation will have control on how they are re-invested and hold control on what percentage of the money is kept rather than paid as surpluses. This investment can be a source of further earnings.
c) The third benefit is retained profit does not dilute the ownership of the corporate.
d) The fourth benefit is that the business is saving on interest as if the business were to borrow large amount of money than they would pay more than they have borrowed whereas using retained profit is using its own money and there is no interest and the business saved on expenses.
Disadvantages for this type of finance are;
a) The first disadvantage is shareholders or partner may prefer dividends
The gross profit margin measures the amount of profits that a company generates from its operations without consideration of its indirect costs. Thehigher thegross profit margin, the greater the efficiency of a company’s operations (Besley & Brigham 2007). It means that the company is generating enough income to cover its operating expenses. On the contrary, a lower gross profit margin indicates that the business is not generating adequate income to cover its operating expenses.
Profits earned or losses incurred by the corporation. Profits retained belong to the common shareholders and the share value increases accordingly.
PROFIT RETENTION- The company’s profit can be used in two ways. The profit can either be invested in the business or it will be paid out to the shareholders as dividends. Dividends are based upon on the shareholders stake.
PROFIT RETENTION – All losses and profits are shared equally, unless their agreement states otherwise.
• Profit Retention: In addition to reaping the profits from the business, the sole individual is also responsible for all debts incurred and for paying expenditures of the business.
Some benefits that are most appealing to me is having greater financial success, independence, flexibility, and challenge because with all of them combined, it’s beneficial to me and can help me gain more money easier.
Profit serves a very crucial function in a free-enterprise economy, such as our own. High profits are the signal that consumers want more of the output of the industry. High profits provide the incentive for firms to expand output and for more firms to enter the industry in the long run. For a firm of above average efficiency, profits represent the reward for greater efficiency.
The third advantage is being able to outsource work when the need for production rises. Instead of having to hire additional employees to augment the increase in labor, a company will have a set staff and then when the need arises, they will hire out for the additional work to be completed.
Gross profit is defined as the difference between Sales and Cost of Sales. The gross margin (or gross profit ratio) expresses the gross profit as a proportion of net sales. The gross profit margin ratio measures how efficiently a company uses its resources, materials, and labour in the production process by showing the percentage of net sales remaining after subtracting the cost of making and selling a product or service. It indicates the profitability of a business before overhead costs. The higher the percentage, the more the business retains of each dollar of sales. So: the higher the gross profit margin ratio, the better.
Retained profit – this is the profit kept by the company after the first profit has been given to the shareholders. In Asda, this profit could be used to give bonuses to employees, to charity, or it could also be used to finance possible changes in company strategy.
Retained Earnings Statement shows amounts and causes of changes in retained earnings during the period. Time period is the same as that covered by the income statement. Users can evaluate dividend payment practices. This statement shows the changes in the shareholders’ equity account. The first line item is the beginning balance for common stock. The amount of newly issued common stock is added to the
This reduces labour turnover in markets, which is a major cost to business. Recruitment, retraining and the possible renegotiation of higher wages all raise costs for firms on a daily basis and are particularly detrimental for small firms with limited number of
Core Benefit: The perceived benefit of this idea is that innovation that can impact the
The Cost benefit analysis is a financial model where companies or government establishments implement on their decision making. The model simply evaluates costs and benefits of a certain decision which enables the organization to choose the “right” option. (O’Farrell, R.,n.d.) The beauty of the CBA model lies in its simplicity, the chosen option is easily justifiable, when the costs are higher than the benefits then there is no compelling reason to make that decision. (O’Farrell, R. ,n.d.) In addition to its simplicity, the model is applicable to various types of decisions, it enable
lower cost is cost advantage, or the firm is able to deliver benefits that exceed