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

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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.  


             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. It is the driving force in most businesses (except charities). There would not be many individuals to commit their time and personal resources to business activities without profit. In economists’ point of view, profit is the difference between the revenue the firm gains from selling its output minus the costs of producing that output. It is a surplus of making up activities. Especially in public limited companies, maximising profit is probably their most important objective, entrepreneurs use it in two ways: one is to reinvest into businesses, the other is pay to shareholders in the form of dividends. Only if the sale’s revenue exceeds by as much as possible the costs of goods, they can make a good profit. The more profit a company gains, the more capital can be reinvested, then by consequences, the larger scale and more output they can receive, and the more share capital are attracted into the business. Those aspects have all helped to develop a successful organisation. Without profit, they either cannot have a good reputation, therefore would not be able to borrow more loan for further development. Worse, the business closed down.

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Indeed, what most for-profit companies seek to are growth and maximise profits. Mr. J. A. Schumpeter pointed out that ‘For the capitalist system, it must be added that without profit there would be no accumulation of wealth.’ In the free-market economy, according to the law of ‘self-interest’, both suppliers and consumers are directed by profit, where their interest lies. At each of the end of the finance year, the amount of profit will be seen as one initial indication of the performance that the business has made during that year. For instance, firm A in the market was considered more successful than ...

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