The profit is the reward for predicting what goods will be most desirable and for delivering them at the lowest cost. But there is besides another side to the model: erstwhile a company produces goods or services for which there is no demand, it will consequently start to endure losses.
Every decision the public makes about the large profits of a single company, any manufacture or even the full “class” of entrepreneurs. Moral outrage grows especially during periods of advanced inflation. It is in large profits that publicists and politicians find sources of price increases and a general "price". Recently, the censors have found themselves with their improvement margins, on which a certain minister has late intervened in the Office for Competition and Consumer Protection.
Profit as a signpost
The profit, i.e. the difference between revenues and costs, plays a key function in the allocation of resources in the marketplace economy. erstwhile the company makes advanced profits, this means that the goods or services it provides respond to the needs of customers. The profit is the reward for predicting what goods will be most desirable and for delivering them at the lowest cost. But there is besides another side to the model: erstwhile a company produces goods or services for which there is no demand, it will consequently start to endure losses.
Moreover, if the advanced profits in a peculiar manufacture are not the consequence of one-off events, but start to be seen as the consequence of a permanent shift in request for the goods it produces, they will start to appear tempted by the possible of earning competitors. This will, on the 1 hand, consequence in an increase in request for means of production and supply produced by specified a commodity industry. Thus, unit costs will increase and sales prices will fall – and thus profits will decrease.
A possible problem may arise if the entry of competitors is hampered, for example by state regulations. In specified a situation, companies can permanently make higher profits not due to their efficiency in gathering needs, but due to their limited entry barriers.
Accounting complexity
However, this general description of the operation of the marketplace process needs to be taken into account. And here the substance is complicated by different levels of the company's financial performance. The final consequence after deduction of all costs and taxes is the net result. This does not mean that this measurement is the best. Therefore, according to the industry, analysts usage different measures to measure and compare their companies.
The problem arises erstwhile these measurements are utilized not for analytical purposes but to manipulate and stir public opinion. For example, in attacks on developers activists, publicists and politicians epatize the seemingly gigantic, over 30% gross margin, which is the gross profit ratio of sales to sales revenue. Gross sales profit is the difference between sales gross and costs incurred for the acquisition of land and construction. The consequence is not reduced by e.g. marketing or administrative costs. The net margin, calculated taking into account all of these costs, is about half lower.
In addition, costs shall be reported at acquisition prices. This means that under conditions of rapidly changing prices, as has been the case in Poland over the last fewer years, the rule of historical cost can artificially inflate profits – as it is no longer possible to buy production at specified low prices. This applies especially to time-consuming processes, specified as in the improvement industry, in which the investment process from the acquisition of land for sale of the flat takes about 5 years.
Time is money and time for recommendations
Speaking of time, remember, as the old saying goes, time is money. Each of us, putting any amount in the bank's savings account, expects to gain more after a year than six months. The same applies to companies – an investment process of 2 years should bring a higher profit than a process of 1 year. And a higher profit is simply a higher margin. In addition, uncertainty affects the expected profits. By investing in more risky assets than bank deposits, we anticipate to gain more on them.
The main barriers to the supply of fresh housing include the long-term and uncertainty of administrative procedures. For example, the decision on the building conditions frequently takes more than a year; the next step is to get a building permit, which frequently takes another year. For this, there is uncertainty as to whether the purchased land can be utilized according to the first plan. These factors translate into margins.
Simplification of administrative procedures can reduce the time of the investment process, and the marketplace competition process would reduce margins and further reduce entry barriers for fresh companies. There is besides a request to release and make land usage more flexible. This would increase competition on the market, which would besides aid reduce margins.
All of this, however, would require a review of the rules, the preparation of changes in the law and the transformation of administration. But why bother erstwhile you can go for easy, show symptoms alternatively of illness and condemn the incorrect “private”? However, specified moral outrage will not solve the problem of missing apartments, due to the fact that if we discourage developers from acting, who will build them?
