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income statements (understanding income statements (retained profit (net…
income statements
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why is profit important
reward for enterprise
successful entrepreneurs have many important qualities and characteristics and profit gives them a reward for these
reward for tisk taking
entrepreneurs and other investors take considerable risks when they provide capital to a business-profits reward them for taking these risks by allowing payments to be made (dividends)
these profits provide incentives: to business owners to try to make their business even more profitable; to investors to put more capital into profitable business
source of finance
profits after payments to the owners (retained profit) are a very important source of finance for the business (expansion)
indicator of success
when some businesses are very profitable, other businesses or new entrepreneurs are given a signal that investment into producing similar goods or services would be profitable. if all businesses in an industry are making losses, this would not be a good signal to set up in that industry
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