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

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NAME:  QIMIN LIU        


DATA:  01-12-2001

In most of people’s opinion, the aim of operating a business enterprise is attempt to achieve as much return as possible. However this is perhaps too general an assumption to make. Thus this essay is going to discuss what extent is profit a good indicator of the success of an organisation. At the beginning, it explains the deep-seated signification of profit. Following this, not-for-profit organisation and profit organisation are analysed with their objectives. Also in this essay, some important factors that affect the measurement of success of organizations are discussed as well. Some examples are quoted and a few graphs are showed in this essay in order to give further dissertation of indicator for business.

The definition of profit in dictionary is advantage, benefit, return, etc. But these are not appropriate to indicate whether an organisation is successful or not. The success of an organisation not just depend on how much it earn but others “profits” such as the reputation in society, the strength of further development and so on. In theory, the entrepreneur would be a profit maximiser. But in fact, profit maximisation is not, as has already been referred, the sole objective of every company.

Many organisations do not seek to maximise profit. They are content to accept sufficient profits to enable the organisation to survive, pay the bills, provide enough to allow employees to be paid and leave the owner or owners an adequate income to allow them to enjoy the life-style they are happy with. According to The Business Environment by P. M. Callaghan et al., profit that the enterprise does not seek to can be called SATISFACTORY PROFIT. For example, a local shopkeeper may choose to close the store at 5.30 pm rather than practice late opening hours; staying open for a longer time would increase profit but allow less leisure time at home. This non-maximisation of profit is not restricted to the smaller one-man business. Many companies do not fully exploit the potential for expansion and profit growth. As anterior mention, some organisations pay more attention in social effect and the future more than profit especially in serves provider. Like hospital, police station, local transport services, welfare work, etc. In this case, what people think about them and the reputation in people’s heart is the indicator of the success of the organisation.

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On the other hand, although profit plays an important role of MAXIMUM PROFIT business, there are many various character of profit that we have to think over carefully when we indicate the account of an organisation. Just let us have a look at a part of the Profit and loss account for GUS Plc.

Resource from GUS Plc Annual Report 2001

According to the chart above, we know the figure of Exceptional items was 84.7 million pounds in 2001, which is greater than one year ago. But in 2000, the figure of Profit after taxation is greater than the ...

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