Creating Capital: Money-making as an aim in business (Business Library) by Frederick L. Lipman

Author:Frederick L. Lipman
Language: eng
Format: epub
Tags: ebook, novel, book, bestseller, top10, interactive media, urban romantics
Publisher: The Big Nest
Published: 2016-10-12T00:00:00+00:00

We must next distinguish between gross profits and net profits. The merchant or manufacturer naturally desires to do a large business, he points with pride to the increase in his sales this year over last year. The larger his turnover the smaller the proportionate amount of his overhead expenses that must be borne per unit of product, and other economies follow large-scale production or distribution. He may occasionally be desirous of increasing his output even when it entails a disproportionate increase in his expenditures, with the idea that he can later occupy himself with reducing these expenses and in the meanwhile the goodwill of his enterprise will have gained from the larger circle of customers. Such is the case with a new enterprise that often starts out with the expectation of little or no profits during its early years, when it is gathering a clientèle and learning to distribute its product with economy. All these, however, are special cases. The normal situation is that the business enterprise is aiming at net profits, having an interest in large sales, heavy transactions and gross profits only so far as these are expected to lead finally to net profits, the real goal. Now these net profits are, of course, the remainder of earnings left on hand after providing for all costs and expenses, for depreciation and every other factor causing loss, destruction, and deterioration during the business period under consideration. In short, the business capital as it was at the beginning of the period is first fully restored and made intact at the end of the period before a net profit emerges. This net profit therefore becomes in a true sense a creation of new capital and may indeed be retained in the business as an addition to capital funds. Even when it is paid out in dividends, partly or wholly, it becomes new capital in the hands of the individual stockholders who then in their private capacity may of course spend it, but by proper investment may keep it permanently stored as capital. It is the creation of capital then, that is in reality the ultimate money-making aim of the business enterprise.

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