Friday, 23 March 2012 11:51

Profit and Productivity

Written by  Administrator

The Relationship between Profit and Productivity

Production is the not the same as productivity. There is a mistaken belief that making a profit means the company is productive. In productivity accounting PROFIT = PRODUCTIVITY + PRICE RECOVERY. The question that then needs to be answered by every executive is: Is our profit growth productivity driven or it is price driven? A more sustainable business model is where profitability is productivity driven. It is important for captains of industry to note that an increase in capacity utilisation does not mean there is an increase in productivity.

 

Productivity in simple terms means producing more with fewer resources while maintaining or increasing the quality of products. However it is the relationship between profitability and productivity which must be explored for the benefits of all stakeholders. Productivity analysis provides key insight into business performance that normally is not shown by the ordinary financial analysis. In this analysis we try to show the dynamics of change in revenue and expenses between two accounting periods (2010 & 2011) expressed in terms of impact of productivity and price recovery. Such a strategic analysis of the company’s financial performance is so vital especially when the company wants to strategise for the next or coming period.

 

 

 

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Last modified on Friday, 23 March 2012 12:11

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