Can Profitability and Morality Co-Exist?

10045 Words Jan 27th, 2012 41 Pages
Can Profitability and Morality Co-exist?
Business Ethics and Corporate Governance

INTRODUCTION TO BUSINESS ETHICS

What is Business??
Business is a legally recognized organizational entity existing within an economically free country designed to sell goods and/or services to consumers or other businesses, usually in an effort to generate profit. It is a commercial activity engaged in as a means of livelihood or profit, or an entity which engages in such activities.

What is Ethics?
Ethics are standards of conduct that indicate how one should behave based on moral duties and virtues. Ethics means
• character or manner
• Science of morals
• Recognized rules of conduct
• Moral principles

Objectives of Ethics

• Studies human behaviour
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What is Profit?
Profit is the reward of factors of production in accordance with the source of service. It is the excess of income over cost of production. For economists, Profit is the excess over the opportunity cost. For accountants, Profit is the difference between income and expenditure computed according to certain rules and regulations.
Profit can be classified as Tangible and Intangible Profit. The objectives of a business determine the interpretation of profit. Profit acts as an incentive that attracts businessmen and potential investors to produce and to introduce new products and cost reduction measures.
Profitability is of two types: Tangible and Intangible
(a) Tangible
Return on Investment
Cash flows
Dividends

(b) Intangible
Trust of the consumers of the organization
Evaluation of the Organizations profits
Status of the people behind the organization

Theories of Profit
1. Reward for taking risk-
The theory attributes profit to the act of risk undertaken by the owners. It assumes that other factors remaining the same, higher the risk, higher the rate of return.

2. Compensation for Frictional Factors-
Some economists associate profit with imperfections in the adjustment of the economy to dynamic changes in the modern world. Benefits due to some change in the dynamic forces will enable entrepreneurs to enjoy a higher return on investment for a while till the economy reaches new equilibrium.

3.
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