Efficiency & Cost of Production

Published: 2021-07-14 13:10:07
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Category: Business and Finance

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Matrices such as valuation, economic profit and other terms are important when it comes to the way financial health of the entity is supposed to be measured and evaluated. In order for the organization to have a fair idea in which direction it is heading it needs to have fair idea about where it is standing in terms of the profit and other relevant measures. Now, it is a well-known fact that critical they are, but also it is important that how they are supposed to be measured at the first place (Førsund et al. 2016).Valuation Of The OrganizationWhen it comes to the valuation of the organization, there are multitudes of measures that are needed to be used (Ferrier and Lovell, 2015). The key thing is the way financials of the organizations are standing at any point of time (Ferrier and Lovell, 2015). The valuation of the organization can also be carried out with the help of the financial ratios (Ferrier and Lovell, 2015). The financial ratios are especially useful due to the fact that they provide industry wise perspective of the issues that are needed to be sorted out at each and every level. It has to be noted that the valuation of the organization is something that is needed to be done with the well rounded perspective rather than looking at the single variable (Ferrier and Lovell, 2015).Economic ProfitIt has to be noted that the economic profit even though is not discussed a lot, it is an important variable for the businesses when it comes to evaluatting themselves. With the help of the better planning and decision making, businesses can make sure that they utilized their resources in an appropriate manner (Ferrier and Lovell, 2015). At the same time, the way pricing is being done is also needed to be evaluated as the revenue streams have a big role to play as far as the determination of the economic life cycle of the organization is supposed to be talked about (Sealey & Lindley, 2017). Now as is the case with some of the other economic variables, the economic profit is also something that is not needed to be looked in isolation, instead there are mulitude of factors that the organization has to look after (Ferrier and Lovell, 2015). For instance, the organization might be interested in having an idea about the cash flows and the status of the liquidity as compared to the level of profit that is accumulated by them at the given period of of time. But at the end of the day, profit is the most important determinant of the financial health of the organization at the given point of time and how they are going proceed with it (Ferrier and Lovell, 2015).Economics Theory ImplicationThe economic theories related to the consumer choice and demand and supply are very important for the business decision making (Sealey & Lindley, 2017). These theories provide important insight about the way customer is supposed to react to the changes that are happening at the marketplace (Sealey & Lindley, 2017). At the same time, the forecasting theory also go a long way towards making sure that the relevant decision making is being done in the right manner with regards to the optimization of the resources (Sealey & Lindley, 2017). Economic concepts such as oppurtunity cost goes a long way in providing the good idea about how choices are supposed to be made in terms of resource allocation (Sealey & Lindley, 2017). They also give a fair idea about the sort of market forces that are going to affect the business in the long and short run (Ferrier and Lovell, 2015).ReferencesFerrier, G.D. and Lovell, C.K., 2015. Measuring cost efficiency in banking: Econometric and linear programming evidence. Journal of econometrics, 46(1-2), pp.229-245.Førsund, F. R., Lovell, C. K., & Schmidt, P. (2016). A survey of frontier production functions and of their relationship to efficiency measurement. Journal of econometrics, 13(1), 5-25.Sealey, C. W., & Lindley, J. T. (2017). Inputs, outputs, and a theory of production and cost at depository financial institutions. The journal of finance, 32(4), 1251-1266.

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