Factors That Affect Corporate Profits

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Corporate Profits
The company’s operating profit is its operating income minus operating costs and expenses; this includes production costs, management fees, sales fees and finance charges, minus the amount of the tax burden of operating income. It refers to the financial results of enterprises in production and operation during a given period including operating profit, investment income, and net operating income and expenses.

Corporate profits after taxes are generally allocated in the following order:

1. Compensate for the losses of previous years’ enterprises
2. The statutory surplus reserve
3. This then, is extracted from the Community Chest
4. The distribution of profits to owners.

Corporate profits are part of the average profit which is a special transformation of the form of surplus value.

The functions of capital using the average profit made by the loan capital and management, after deducting interest to corporate profits, are called the balance.

Factors That Affect Corporate Profits

There are four main factors that affect corporate profits:
1. Product price
2. The product’s variable cost per unit
3. Product sales
4. Fixed costs of the product

Significant change in any of these factors can lead to adjustments in corporate profits, and likely affect a business’ turn from profit to loss. In order to monitor corporate profitability, business decision makers should be equipped to make the right decisions under intense changes in the external environment. With sensitivity analysis, business managers have a clear understanding of such problems.

Relationship with economic benefits

The economic benefits of the GDP and the ratio between the costs of production, using the formula:

Economic benefits = gross domestic product / production costs

Corporate profits to GDP more than the difference between the costs of production, using the formula:

Profit = gross domestic product – the cost of production

Corporate profits increase (or decrease) may indicate that the enterprise’s economic efficiency (or reduced), must be a specific analysis:

  1. The cost of production (i.e., the production process of resource consumption) unchanged shows an increase (or decrease) of profits, means that the economic efficiency of enterprises and both increase (or decrease) in magnitude, is consistent.
  2. The total profit unchanged, production costs increase (or decrease) indicates that the economic benefits of lower (or raise) decline in amplitude (increased) consistent.
  3. The costs and profits with the rate increase (or decrease), equates to the same economic benefits.
  4. The cost increase (or decrease) more than the profit increase in economic decline (or increase).
  5. Thus, corporate profits increase (or decrease), cannot be simply equated to improve the economic efficiency of enterprises (or decrease).

    Socialist Enterprise Source of Profit

    Socialist corporate profits have three main sources of effective macro management, micro-management, and technical factors.

    What Are The Three Aspects?

    I. Macro Management

    An effective macro management refers to the full research and the development of rational social and economic development policy, to the enterprise development space, and guide development in a reasonable and legitimate track to create profits.

    A socialist country is bound to apply macro-management for most people; not for short-term interests of the minority services, but for the long-term interests of the majority. Macro-management is an inevitable impetus to the development orientation of the growth of enterprises, where its development results have a concrete impact.

    There are specific performances of the macro-management policies promulgated by the state. The real business is very concerned about the policy dynamic. The policy dynamics of enterprise development, the force has a direct influence. This force is outside the enterprise’s strength and it role in the production activities of enterprises, and into the enterprise to create value and profits in the socialist countries. Although the policy is not directly involved in the management of the business, but it was just a formality.

    For government workers, their labor through the imposition of effective macro-management of their labor value added to the enterprise’s value creation activities. Part of labor to create value for government workers need to be reflected in the value created from the enterprise. Effective macro-economic management will only make the most effective development, so most companies have a profit from the market. Such interest there is the labor value of the macro-managers into their contribution.

    II. Micro Management
    Another facet is the effective micro-management business managers imposed on the enterprise.

    Two aspects of micro-management are managers of labor, and non-contribution to workers for management positions in business management. The two workers added to the corporate value creation process should be transformed into enterprises to create value and create profits shown.

    Enterprise management where managers are in management positions in, rather than ordinary workers in management positions. The value of corporate contributions management often does not attract attention and awareness, which in the economic theory, is a major mistake.

    In reality, good business managers do not contribute to the management of labor and the value of all occupation. However, they are involved in business management where all employees contribute their rationalization proposals to the development of wisdom and knowledge for the enterprise. Business development proposals collected yearly from employees is knowledge and wisdom that is transformed into the value created by the enterprise.

    III. Technical Factors
    Some of the today’s advanced technology can improve the productivity of the enterprise, and give more priority to the development present. For example, with the rise of product production, companies will be unable to change the case of other production conditions, technological innovation, and improve the technical level of production equipment to improve production efficiency; the production equipment in the unit has time to produce more products to increase market share through the expansion of production, thereby increasing the profits of an enterprise. Profits have increased the value contained in the transformed factors.

    Types of Corporate Profits

    1. Operating Profit
      The company’s operating profit is the main business income (turnover), less material or commodity procurement costs, staff wages, equipment wear and tear and depreciation, business tax and surcharges, increased investment income. It is the balance after the changes in the fair value of net income.
    2. Corporate Finance Profits (Investment Returns)
      The economic benefits of the corporate long-term investment income, short-term financing income, and the difference of the costs involved, the reaction of corporate long-term investment, short-term borrowings and other financial activities.
    3. Non-operating Profit
      It is the difference between operating income and expenses, the reaction enterprise business, and the balance of payments situation.
    4. The Total Profit
      Enterprise production and management of all aspects of the final results are the main business enterprises, other business and foreign investment, operating business sectors of economic benefits, a comprehensive reflection of our corporate profitability and investment returns, and profit distribution.