Business As A Social Process

Several aspects of a business affect net income. This is evident from the net income equation (Net Income= [{(Price*Quantity) -(Variable Cost per Unit*Quantity)-Fixed Cost} *(1-Tax Rate)]. To sell goods or services, a company needs to make its services or products are known and demanded by the customers. A company can increase its marketing activities to increase the amount of sales and as a result increase the net income to the company. Marketing should be specific to achieve the desired results. The more a company invests in marketing the greater the sales which is a function of quantity in the income equation. With more sales being multiplied with price, the aggregate revenue increases. With the fixed cost being constant, net income will increase.

Business As A Social ProcessCompanies also require to have a code of ethics that guides internal and external interactions. Ethics will affect net income in two different ways. Employees need to be ethical when dealing with clients to increase loyalty and referral clients. This in turn increases sales volume. Unethical practices can also lead to losses of company funds. From an external perspective, companies that operate ethically in their production processes win more clients and this increases revenue which in turn increases the net income.

Accounting can also have an income on the net income. Accounting is the basis on which is business transactions are recorded. The records can be in cash where transactions are recorded when cash has been issued. Transactions can be recorded on an accrual basis where revenues are recorded regardless of the cash flow. This can have an effect on the net income. When a company recognizes transactions that involve cash movements, net income will be lower than when transactions are recorded whether cash has been issued or not.

Organizational behavior regards how an organization deals with human challenges that exist in the business. Addressing challenges organizational behavior will help an organization run smoothly without increasing the costs of operation. Businesses will be able to monitor and control the variable costs of production by being able to counter contingencies without much costs being involved.

Finance is also important in controlling costs and maximizing profits. A business will consider the best mix of funds to employ in the firm. The optimal finance mix can help a business reduce its tax liability because tax is calculated after deduction other obligations of a business. In this way a business is able to employ more capital by borrowing and offsetting the effects on the tax remitted to the tax authorities. Reducing tax will help the business increase net income.

Operations is one of the most crucial processes in a business. Operations is the process through which goods and services are produced. Operations will help an organization determine the optima production capacity. At the optimal capacity there will be no idle inventory that ties up funds while cost have been incurred in the production process. Operations can help the business increase output if it producing sub optimally increasing sales revenue. It can also help reduce the variable cost component by setting the optimum number of goods to produce to make the variable cost per unit optimal. By reducing variable costs or producing optimally business are able to increase sales and reduce variable costs increasing net income as a result.

Quantitative analysis is tool that uses numbers to solve some of the complicated problems in business. For instance, a cash flow analysis can help a business evaluate business on their profitability. This helps identify which projects are more profitable and the timing of profits. In this case, quantitative analysis will help a business identify which areas have higher variable costs and how to reduce them. This can help reduce the costs and increase the net income.

Strategy looks at how a business works as a whole to meet the desired goals. Functional strategies help a business chose the activities to engage in such as utilizing modern technology to cut costs. Such a strategy reduced variable costs and increases net income. Business also set business strategies which are the strategies that it employs to compete with rivals. For instance, a business may choose to lower its prices to increase its market size which in turn increases the quantity sold and net income as a result. Business also use corporate strategies to decide the kind of business to be involved with and the reasons for such business. A Business will therefore choose to stay in the business that is most profitable and increase net income.

Every aspect of a business is aimed at the ultimate goal of profit maximization and by extension increasing shareholder wealth. Business must therefore choose the right course of action that leads to the ultimate goal of increasing the company shareholder’s wealth. Profitability is one of the greatest way to increase shareholder wealth because shareholders get higher returns from their ownership stake in the company. The value can be measured by estimating future earnings for a business and discounting them to the present. This shows that a firm value will increase as its profits increase.

Maddox Smith

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