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winterfalls - Animals/Nature
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CORPORATE WORLD : TERMINOLOGY

||| Economics for MBA |||

WHAT is a Company? It is an Organization that provides goods/services to consumers for a price in monetary unit. Whose basic trend is to maximize its growth & income.
Business and Financial Analysis
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A Business or Firm or Enterprise is a legally recognised organisation designed to provide goods or services to consumers.
Financial Analysis refers to an assessment of Viability, Stability & Profitability of a business,
or project. This assessment would be based on some key factors those are characteristics of a
conventional business. Those characteristics are as followings
(i) Profitability: It is the ability of the business enterprise to earn sustainable income as well as sustain growth in both long term & short time. It is usually based on the Income statement of the company.
(ii) Solvency: It is the ability of the firm to pay its obligation (liabilities &duties) to Creditors and other third parties in the long term operation of the business.
(iii)Liquidity: It is the ability to maintain the positive cash flow while satisfying immediate obligations. Both solvency & liquidity are based on the balance sheet of the company
(iv) Stability: The firm's ability to remain in business in the long run,without facing any significant loss in the conductance of its business.

ECONOMIC PROFIT Vs. ACCOUNTING PROFIT

ECONOMIC PROFIT:
In Economics Economic Profit is the difference between a company's Total Revenue & its Opportunity Costs where Revenue means income that a company receives from its normal business activities, usually from the sale of goods and services to customers, and Opportunity Cost
or economic opportunity loss means is the value of the next best alternative or possibility that could have been chosen instead of the current process.

ACCOUNTING PROFIT:
In Economics Accounting Profit is the difference between a company's Revenue in the form of Price & its Accounting Cost means the Cost of bringing the product to market by either
(i)Harvest or. (ii) Extraction or (iii) Manufacture or (iv) Purchase.

Economic. Profit:
It may be defined as the increase in wealth that an investor has from making an investment, taking into consideration of all the costs associated with that investment including the opportunity cost of the capital. If the opportunity cost of a decision is less than the revenue earned due to that decision then it represents a good choice of decision having a positive economic profit. Conversely if the opportunity cost exceeds the revenue generation that reflects an economically unprofitable decision bringing an economic loss

Accounting Profit:
A business is said to be making an accounting profit if its revenues exceeds the accounting cost of the firm. Conversely if the revenue generation falls down below its cost of bringing the product to market due to other economic activities, the business suffers an accounting loss.

Economic Profit:
At equilibrium condition, average cost equals marginal cost at the profit maximizing position as a result the economic profit would be zero as at equilibrium condition, there is no way to increase the profit. A positive economic profit happens when the firm's average cost is less than the price of product or services. The economic profit is equal to the quantity of output multiplied by the difference between the price and the opportunity cost of the product.
If the O.C.= opportunity cost, P= price, Q= quantity of the product, then
Economic profit, EP= (P-OC)xQ

Accounting Profit: A positive Accounting profit happens when the Average Cost of a product is less than the price of the product. If AP= accounting profit, and AC= average cost,then
Opportunity Cost, OC= (P-AC)xQ


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