Analysis of Business Profitability Paper Example

Introduction

The above article elaborates on the profits determining factors on a product sales for Raritan Manufacturing Company. Some of the gains identifying factors are: the price of a product, sales volume and fixed and variable costs. Breakeven calculations are done to determine the product profitability. It is crucial to decide on how a product is performing for decision-making purposes by the managers of the company or business. A company dealing with a variety of products production require the breakeven analysis just like a single product manufacturing company. Companies come up with a budget estimate yearly and procedures of spending under specific production volume capacity. A manufacturing company conducts a standard cost analysis while a finance service profitability analysis refers to as functional cost analysis. Calculations of the breakeven point make it possible to calculate variance analysis, thus enabling the management to determine the company performance (Ward, 2016). Contributions number determine the breakeven point. Fixed cost remain the same despite a change in production volume while variable cost varies in different production capacity. Salaries, rent, staff expenses and machinery repair are fixed costs. Labor, raw materials, distribution costs are variable costs. Some payments like factory over, distribution and administration fall into both categories of variable and fixed costs. Contribution margin is the profit per unit of the product. Business profitability analysis article goes hand in hand with business finance subject as it mainly focuses on finances generated as profits from product sales. The report clearly shows how the company calculate and create benefits and also use cash to fund various production costs.

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Observations

The higher the variable cost with a low production volume will give rise to the reduced amount of losses by the company. Example 7,000 units, will generate a loss of $30,000 if storage cost is fixed on the other hand will create a loss of $24,000 if storage cost is variable. Outsourcing products are the best way to survive for a new company or on the recession. Technology has made possible for companies to seek a solution from sources outside the company. High variable costs and a low production volume makes it easy to reach the breakeven point.

Return on Investment

The article return on investments summarizes profits originating from an investment. The amount of money invested is expected to generate called investment worthiness. Return on investment analysis helps company managers determine whether an investment is essential or not. An investment is expected to make cash for several years. It is crucial to critically analyses an investment decisions as they have a long-term effect and is a substantial financial risk (Rackley, 2015). Customers change in product taste and preference, and also an idle time of equipment installed due to lack of customers order is lethal for the company. Forecasting helps avert the above issues. At time companies have problems sourcing raw materials, shortages in the workforce and lack of suitable transport services. It is hard to forecast the future of a business, mainly due to advances in communication bringing everyone together. Discounted cash flow is a tool for evaluating investments opportunities like capital expenditure, development and research, advertising and promotional efforts, Outsourcing, negotiations (price, payment terms, duration, and specifications), new products and business evaluation, purchasing a business and real estate valuation (Westcott, 2016). Net present value, profitability index and internal rate of return are measures of profitability to gauge an investment. Time value of money is essential; cash flow reinvestment upon receipt. An investment principle is calculated using a set interest rate to determine its present's value. Payback period is the time taken for investments cash flow to be equal to the investment itself. Return on investment article relate to business finance covers cash to put in on business investment. The article brings clearly on how funds are generated in a company and also spent.

Observations

Before picking an investment, an investor should analyze both its negative and positive effects for the better future forecast. Investing in a company will require an investor carefully examine the way a company will exist in the future.

References

Rackley, J. (2015). Return on Investment. In Marketing Analytics Roadmap (pp. 71-85). Apress, Berkeley, CA.

Ward, J. (2016). Keeping the family business healthy: How to plan for continuing growth, profitability, and family leadership. Springer.

Westcott, R. (2016). Return on Investment. Quality Progress, 49(1), 47.