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Income Statements (Understanding Income Statements (Retained Profits…
Income Statements
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Why is profit important
Reward for enterprise
Successful entrepreneurs have many important qualities and characteristics and profit give them a reward for these
Reward for risk taking
Entrepreneurs and other investors take considerable risks when they provide capital to a business-profit 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 profits ) are a very important source of finance for the business
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 I fall businesses in an industry are making losses, this would not be a good signal to set up in that industry
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