Matrices such as valuation, economic profit, and other terms are important when it comes to the way the financial health of the entity is supposed to be measured and evaluated. In order for the organization to have a fair idea of which direction it is heading, it needs to have a fair idea of where it stands in terms of profit and other relevant measures. Now, it is a well-known fact that critical they are, but it is also important to how they are supposed to be measured in the first place (Førsund et al. 2016).
Valuation Of The Organization
When it comes to the valuation of the organization, there are multitudes of measures that need to be used (Ferrier and Lovell, 2015). The key thing is the way the financials of the organizations are standing at any point in time (Ferrier and Lovell, 2015). The valuation of the organization can also be carried out with the help of financial ratios (Ferrier and Lovell, 2015). The financial ratios are especially useful due to the fact that they provide an industry-wide perspective of the issues that need to be sorted out at each and every level. It has to be noted that the valuation of the organization needs to be done with a well-rounded perspective rather than looking at a single variable (Ferrier and Lovell, 2015).
Economic Profit
It has to be noted that economic profit, even though it is not discussed a lot, is an important variable for businesses when it comes to evaluating themselves. With the help of better planning and decision-making, businesses can make sure that they utilize their resources in an appropriate manner (Ferrier and Lovell, 2015). At the same time, the way pricing is being done also needs 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 they accumulate at the given period of time. But at the end of the day, profit is the most important determinant of the financial health of the organization at a given point in time and how they are going proceed with it (Ferrier and Lovell, 2015).
Economics Theory Implication
Economic theories related to consumer choice, demand, and supply are very important for business decision-making (Sealey & Lindley, 2017). These theories provide important insight into the way the customer is supposed to react to the changes that are happening in the marketplace (Sealey & Lindley, 2017). At the same time, the forecasting theory also goes a long way towards making sure that the relevant decision-making is being done in the right manner with regard to the optimization of the resources (Sealey & Lindley, 2017). Economic concepts such as opportunity cost go a long way in providing a 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).
References
Ferrier, 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.
Cite This Work
To export a reference to this article please select a referencing stye below:
