not-for-profit

Examples of not-for-profit in the following topics:

• Operating Margin

  • For example, an operating margin of 0.5 means that for every dollar the company takes in revenue, it earns $0.50 in profit.
  • A company that is not making any money will have an operating margin of 0: it is selling its products or services, but isn't earning any profit from those sales.
  • However, the operating margin is not a perfect measurement.
  • It does not include things like capital investment, which is necessary for the future profitability of the company.
  • The operating margin is a useful tool for determining how profitable the operations of a company are, but not necessarily how profitable the company is as a whole.

• Profitability Ratios

  • This figure should be compared to its competitors in order to determine whether this is healthy or not.
  • Profitability ratios show how much profit the company takes in for every dollar of sales or revenues.
  • This ratio uses the bottom line on the income statement to calculate profit for every dollar of sales or revenues.
  • The profit margin is mostly used for internal comparison.
  • It is difficult to accurately compare the net profit ratio for different entities.

• Profit

  • Some firms decide to set prices to maximize profits for either the short run or the long run.
  • Target revenue ($) is the corresponding figure for dollar sales.
  • If, contrary to what is assumed in the graph, the firm is not a perfect competitor in the output market, the price to sell the product at can be read off the demand curve at the firm's optimal quantity of output.
  • An alternative perspective relies on the relationship that, for each unit sold, marginal profit (Mπ) equals marginal revenue (MR) minus marginal cost (MC).
  • Recall formulas for calculating profit maximizing output quantity and marginal profit

• Management in Different Types of Business: For-Profit, Non-Profit, and Mutual-Benefit

  • In contrast, a non-profit organization is legally prohibited from making a profit for owners.
  • A mutual-benefit non-profit corporation can be non-profit or for profit.
  • A mutual is therefore owned by its members and run for their benefit; it has no external shareholders to pay in the form of dividends, and as such does not usually seek to generate large profits or capital gains.
  • For example, a manager of a for-profit company may be able to motivate employees through bonuses for sales targets or profit sharing.
  • This strategy cannot work for a non-profit or mutual-benefit corporation.

• Gross Profit Method

  • An inventory valuation allows a company to provide a monetary value for items that make up their inventory.
  • If inventory is not properly measured, expenses and revenues cannot be properly matched and a company could make poor business decisions.
  • Periodic inventory is not updated on a regular basis.
  • Gross profit ratio equals gross profit divided by sales.
  • Furniture Palace has cost of goods available for sale of $5000.

• Sources and Determinants of Profit

  • Whether economic profit exists or not depends how competitive the market is, and the time horizon that is being considered.
  • In contrast, accounting profit is the difference between total revenue and explicit costs- it does not take opportunity costs into consideration, and is generally higher than economic profit.
  • The reasons for the positive economic profit are barriers to entry, market power, and a lack of competition.
  • For example, firms can collude and work together to restrict supply to artificially keep prices high.
  • In the long run for a firm in a competitive market, there is zero economic profit.

• Profit Margin

  • Profit margin is one of the most used profitability ratios.
  • Net profit is the gross profit minus all other expenses.
  • The gross profit margin calculation uses gross profit and the net profit margin calculation uses net profit .
  • The profit margin is mostly used for internal comparison.
  • It is difficult to accurately compare the net profit ratio for different entities.

• Profit and Value

  • Earnings Before Interest and Taxes (EBIT), or operating profit, equals sales revenue minus cost of goods sold and all expenses except for interest and taxes.
  • Earnings Before Tax (EBT), or net profit before tax, equals sales revenue minus cost of goods sold and all expenses except for taxes.
  • It is a standard economic assumption (though not necessarily a perfect one in the real world) that other things being equal, a firm will attempt to maximize its profits.
  • " Note that economic value is not the same as market price.
  • As such, it is important for a firm to be able to accurately determine its present value.

• For-profit marketing versus nonprofit marketing

  • As the terms connote, the difference between for-profit and nonprofit marketing is in their primary objective.
  • For-profit marketers measure success in terms of profitability and their ability to pay dividends or pay back loans.
  • Continued existence is contingent upon level of profits.
  • While they are allowed to generate profits, they must use these monies in specific way in order to maintain their non-profit status.
  • There are several other factors that require adjustments to be made in the marketing strategies for nonprofits.

• Profitability analyses (e.g. by customer, product, region)

  • While it is good to know such things intuitively, it is better to know them for sure.
  • And knowing them for sure requires that systematic analyses be prepared.
  • "Quite often a very small percentage of the firm's best customers will account for a large portion of firm profit.
  • While it is usually clear what revenue each customer generated, it is often not clear at all what costs the firm incurred serving each customer".
  • In this case, cost of goods sold is substituted for "allocated costs" in column three of Exhibit 40, and column four will show gross margin by customer instead of profitability by customer.