Physical, Financial and Earnings in The Company Today (II)
The simplest way of finding this minimum is to focus on the last of the three functions. The necessary gain is easy to find: it is the obligation under the capital market for the type of financing desired profit or dividends required to provide and produce the required additional capital.
As an initial step, the profit should always include the time factor. Profit as such has no meaning and tends to mislead unless we know for how many years you can expect the gain. Therefore we must always mention the total earnings expected from the life of the investment at its current cash value, rather than an annual dividend. This is the method used by the capital market and exceeds a weakness of accounting, consider the calendar year has some economic significance.
Second, we must always consider the dividend as an average resulting from the good years and bad together. You have to know how much we really need to achieve the desired average, taking into account the possibility that bad years are presented.
In large businesses, not only must consider profit, but also the risk involved. In this way we can develop a rational policy of capital investment, without which there can be a real capital budget. A rational policy of fixed capital investment limits for management decisions. Please indicate which of the alternative ways of achieving the goals of marketing, innovation and productivity should be preferred. Above all, force management to realize that obligations assumed when making decisions.
A capital investment policy must be based on a reasonable estimate of the ratio between risk and profit. These risks are not statistical (excluding depreciation, which is considered cost), but that can only be reduced to probability forecasts.
The real problem with the profit is not, however, we should measure, but as friendly. Are inadequate and a percentage of sales or the relationship with the capital invested. In reality there is still an appropriate method. The wisest course is to accept the simplest, realize their disadvantages and seek to address them. It is recommended to measure the profit projected net income (before taxes) against the original investment at original cost (before depreciation and adjusted for inflation/accusation).
Source: www.microcaos.net/negocios/recursos-fisicos-financieros-y-ganancias-en-la-empresa-de-hoy/
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