Profitability Measures Case Study Example | Topics and Well Written Essays - 250 words

Profitability Measures - Case Study Example On the other hand, return on assets will show how efficiently and effectively the company’s assets have been used in increasing the company’s returns. From the analysis, it will therefore be feasible to rank the companies in terms of their performance. Q2. Return on equity is a better premise of evaluating the performance of firms than the return on sales. Shareholders who are the providers of capital will only get interested if they get value for their resources. Return on equity is therefore in line with the firm’s objective of wealth maximization. Return on sales shows the proportion of sales that constitutes the profits to the company. It can be subject to manipulation by the management and therefore not a reliable way of assessing management efficiency (Freberg & Boland, 2000). Managers can alter their revenue sources to include only profitable products and customers rather than all its activities. Margins also depend on the capital base. Q3. It is possible that firms, which are profitable, offer negative returns to their shareholders. To a nonprofessional this might look ridiculous though it is possible. Profitable firms may have high obligations on repaying their debts or the directors could enjoy high compensation at the expense of the shareholders. Moreover, the large profits could be retained hence making shareholders fail to feel the profitability of the company. All the criteria used in assessing company’s performance have limitations. The best way of ranking effectiveness should be based on the shareholders wealth

Ethics in Free Market Economy Research Paper Example | Topics and Well Written Essays - 1500 words

Ethics in Free Market Economy - Research Paper Example Social justice issues related to the costs of group membership can come up in any size of a group. Benefits of group membership are also allocated through social justice mechanisms. There are certain distributive principles of social justice out of which Neo-liberal or Libertarian view will be discussed (Barusch, 2009). (Somerville & Sprigings, 2005) The distributive principle of libertarian concept says: From each according to his choice; to each according to his product (Barusch, 2009). Allocation of resources according to a product is central under the libertarian view of distribution. Libertarians believe in liberty over equality. They are of the opinion that inequality is acceptable and fosters social being and welfare in a society. Equal treatment in distribution ultimately leads to unequal distribution of resources. This is the price for freedom and government need not interfere (Barusch, 2009). Libertarians focus on the benefits of a free market over a system controlled by th e government. The reason being a free market society enjoys greater productivity among its workers and greater incentive to generate capital (Barusch, 2009). Free Market Economy Supporters of the free market economy claim that individuals should be allowed to make contracts with others regarding wages and prices and profits. People should be free to compete with each other to gain maximum benefit. They believe that if markets are set free, the outcome will be just and fair distribution of gains and responsibilities in society. People who support a free market economy will never support unregulated markets (Finifter, 2009). Free markets ensure the efficient distribution of goods to those who grab the opportunities to obtain their desired products and services. Free markets operate on people’s demands. They produce only those products which are demanded by the consumers. Consumers set their desired price. Free markets work for people, for the betterment and welfare of the socie ty (Boyes & Melvin, 2009). In free markets, prices are determined by both buyers and sellers in the market.