Profits and Loss

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Profits and Loss by Mind Map: Profits and Loss

1. Profit

1.1. Difference between costs of production and revenue earned from sales

1.2. Profit = TR - TC

1.2.1. TR (Total Revenue) Price x Sales

1.2.2. Turnover

1.2.3. TC = FC - VC FC (fixed costs) VC (variable Costs)

1.3. Drives business objectives

1.3.1. Normal Profit: minimum amount needed to keep business in particular line of production

1.3.2. Abnormal Profit: profit above normal profit

1.3.3. Subnormal Profit: profit below normal profit

1.4. Functions

1.4.1. demand buoyant, prices may be rising

1.4.2. attracts new businesses, encourages efficiency, enterprise, innovation and risk taking

1.5. Profit Margin = profit / revenue x 100

1.5.1. can be affected by: cost of capital equip. Destinations changes in interest labor costs type of market top end bottom end

2. Losses

2.1. When cost exceeds revenue over a period

2.1.1. caused by temporary downturn in economy

2.1.2. external shocks

2.1.3. changing tastes/fashions/technology

2.2. can be sustained

2.2.1. restructuring Destinations

2.2.2. re-financing - share/loans

2.2.3. using reserves

2.2.4. cut costs

2.2.5. boost sales

2.3. adding value

2.3.1. difference between input costs and value placed on the product/ service by the market

2.3.2. value added may be tangible brand, image,styke

2.3.3. value chain value adding activities in a product or service

3. The Market System

3.1. (consumer = demand) + (producers = Supply) = the market

3.1.1. Destinations

3.2. Price acts as a signal

3.2.1. Rising Prices: Goods in shortage, demand greater than supply

3.2.2. Falling Prices: existence of surplus, supply exceeds demand

3.3. Factors influencing supply and demand

3.3.1. incomes (demand) Destinations

3.3.2. cost of production (supply) Destinations

3.3.3. advertising (demand)

3.3.4. external shocks (supply)

3.3.5. fashions and tastes (demand) Destinations

3.3.6. technology (supply)

3.4. Changes in Supply and Demand

3.4.1. creates surpluses and shortages Destinations

3.4.2. influences price

3.4.3. firms respond to seek profitable opportunities

3.4.4. business flexibility important to long term survival in changing markets