Profit plays an important role in the existence of business due to the following reasons:
1. Survival:
It helps the business to continue to exist in the market, by meeting the expenses.
Business has to cover its operational costs, such as salaries, rent, utilities, and raw materials. Without sufficient profit, a business may struggle to meet these expenses, leading to financial instability and potential closure.
2. Expansion and growth:
Profit helps the business to increase the scale of its operations and then grow to the new heights.
Profit provides the financial resources needed for a business to expand its operations, enter new markets, and invest in new products or technologies. Expansion and growth are critical for a business to stay relevant and competitive in a rapidly changing environment.
3. Index of performance:
Profit is used to judge the performance and efficiency of the business, as more profits indicate better performance and increased efficiency.
Investors, stakeholders, and management use profit as a benchmark to evaluate the success of the business and make informed decisions about future investments and strategies.
4. Reward for bearing risk:
Since no business can exist without risk, the burden of bearing risk is compensated and justified by earning profits.
Every business venture involves a certain degree of risk, whether due to market fluctuations, competition, or other uncertainties. Profit justifies the effort, time, and resources invested in the business, providing a return on investment that motivates continued risk-taking and innovation.
5. Creation of goodwill:
By earning profits business is able to build reputation in the market and attract new parties like employees, customers, investors etc.
A profitable business is seen as successful and reliable, attracting new customers, employees, investors, and partners. Goodwill is an intangible asset that can enhance the overall value of the business, support long-term relationships, and provide a competitive advantage.
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Learning Games and Activities in Business Studies – Class 11