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To what extent is profit a good indicator of the success of an organisation?

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Introduction

TO WHAT EXTENT IS PROFIT A GOOD INDICATOR OF THE SUCCESS OF AN ORGANISASION? What incentives drive people to spend their time, energies and engaged into businesses? When many people in businesses and firms are approached and asked by this question, their reply is simply and straightforward: to make money. In other words: to make a profit. It maybe true for some organizations. As we all have known, there are various organisations operating everyday, they give profound implications for the way we make sense of our lives and of the changing world we live in. But what are involved in organizations? Different objective aims distinguish them between non-profit and for-profit. Organisations Non-profit For-profit Public sector private sector Charities; Hospitals Sole traders; partnerships; Churches etc. Private limited companies; Public limited companies Category of organisations From the diagram shown above, a large percentage of the organizations are for-profit ones. Which factors should we take into account when measure a performance of a for-profit organization? Is it justified to say that the only measurement of a successful organisation is profit? How important is profit relate to an organisation? Profit is probably the initial motive that most people choose to take risks other than pursue another ease career. ...read more.

Middle

Therefore, to some extent, profit can be seen as a good indicator of a prosperous organisation. The amount of profit decides who is in a predominance position in the market. Organisations cannot survive without profit and profit-making organisations create wealth in the economy. In many respects, it is may indeed be true to say that profit plays a dominant role in the vital area of most of the for-profit organisations and indicates how success they are. However, skeptics wonder does the factors have been considered thoroughly? What are the arguments against it? At first glance, is profit the difference between the cost of providing goods or services and the revenue derived from their sales? Further analysis reveals drawbacks to this way of thinking. Due to there are various types of cost which can be allowed for, profit is also classified by several different types: gross profit, operating profit, pre-tax profits and profit after tax. In accountancy, it is wrong to judge an organisation is a successful one by only looking at its gross profit. Instead, to make an accurate estimation of organisations' statements, we always look at the operating profit figure which is defined as the gross profit minus the organisation's expenses and overheads.6 It is possible for a firm to have an increased gross profit but a decreasing trend in net profit. ...read more.

Conclusion

Yet unprofitable activities cannot last in the long run. Apart from those for-profit organisations; profit cannot be an indicator in non-for-profit organisations, as the measurement is not according to how much profit they gain through business activities, but due to their various functions and the different services they provide. Such as charities, public goods service, education, churches and so on. To sum up, clearly, every aspects contributions to the success of an organisation-but in what proportions? This, of course, is the heart of the debate. Profit indeed occupies a large proportion of the total 'ingredients' of making a successful organisation. If you cannot make profit, you cannot exist; if you cannot make profit, you cannot develop; if you cannot make profit, you cannot survive...(Even charities want profit to maintain their daily needs). Therefore, profit is said to be a good indicator of the success of an organisation. But on the other hand, profit is not absolutely perfect. Not only because profit itself plays a limited role, but also when we analysis organisations' performance, a suitable circumstance should be chosen and taken into account, as it is said: one key only matches one locker. Profit, to some extent is a good indicator when it is defined in a suitable, properly way. ...read more.

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