The main objective of the business is to earn profit that is the excess of revenue over cost.
Profit = Revenue – Total cost
Role of Profit in Business
There are 7 roles of profit in business as follows.
1. Returns to Investors:
The first role of profit in business is to give returns to investors. people who invest their money to get fair returns. This is possible if sufficient profits are earned by the business.
2. Research and Development (R&D):
Sufficient profit allows firms to spend more money on Research and development i.e (R&D) This can lead to lower costs and better technology. Ingenious products benefit the whole country.
3. Growth and Expansion:
Retention of profit can be used for increasing the volume through diversification and expansion of business. The piece of the profit is re-invested in the business for additional development.
Suggested Video on Role of Profit in Business
4. Increases efficiency:
The fourth role of profit in business is to increase efficiency. profits boost payment of various dues in time. It also encourages the employees working in the organization. This increases the efficiency of the organization.
5. Means of livelihood:
Businessmen make profits which is their means of livelihood. By earning good profits they can live a worthy standard life through satisfaction with various wants.
6. Reward for Risk:
Profit is a reward for taking several business risks Profits also act as a protection against those risks which cannot be insured e.g. fall in demand, negative government policy, etc.
7. Survival:
The seventh role of profit in business is to run a business. It assists the business to exist in the market. It will not serve in the growing competitive environment. if the business does not make enough profit. Profit means survival in competitive circumstances.
So, friends, these were the Role of Profit in Business and I hope you have understood them clearly. But still, if you see any need in this post, then please give your view in the comment box and help us to improve that deficiency, thanks.
FAQ on Role of profit in business
1. What is the main objective of a business?
Answer: The main objective of business is to earn profit.
2. what is the first role of profit in business?
Answer: The first role of profit in business is to give returns to investors.