A profit occurs when the value of a firms sales is greater than the costs. Profits are important to businesses as they can provide the opportunity for expansion and is vital for growth. Profit can be used to reward owners and reinvest in to the firm.
Profit = total revenue - total costs
Revenues are the earnings or income generated by a firm as a result of its trading activities
revenue = quantity sold x average selling price
Financial considerations a business might have... Running costs, direct costs, indirect costs, opportunity costs, fixed costs, business costs, variable costs
distributing profits can prove difficult as it is important to keep the balance between short term and long term goals, distributing a high proportion of profits may keep shareholders happy in the short term, but might not be in the interests of those looking for a long term investment.
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