This html-coded online version of the Wombat Final 15/5/06 9:12 AM -- wombatbook.pdf, was prepared by Darlene Sartore with some additions, clarifications, minor adaptations, color texting, and numbered paragraphs to make the text easier to use in follow-along reading and referencing during dialogs.... This version is for use only by course presenters certified by An Ever Better World Internet Academy. Permission granted from author on March 5, 2007.
Chapter 16. Profit
Profit is not a dirty word
profit n: 1 an advantage or benefit.
2 financial gain. 3 excess of returns over outlay.
– Oxford English Dictionary
profit n: 1 an advantage or benefit.
1. This part of the book has been written for those who want to go beyond the theory of newsell and put it into practice. It will show you simply and effectively how you can use newsell to build your own profits in just 100 days.
2. I recently read in the news an interview with the retiring CEO of one of Australia’s biggest companies. He was an American who had been recruited to lead this large business and had done a great job. Now he was retiring back to the States. He had enjoyed his stay here and he found Australians to be friendly and hospitable, but he made an interesting observation: he noticed in Australia that the word ‘profit’ was often a bad word. It was a word that seemed to smell, in some circles, even frowned upon, in others. He thought this was because the word and the concept were widely misunderstood.
3. On reflection, I agreed with him.
4. Whether we like it or not, we live in a world that is powered by profit. People talk about ‘making a profit’. Companies succeed and make profits or fail and make losses. Are profits bad? Should we make profits? What happens if we don’t make a profit? Who cares?
What is profit?
Let’s start with a dictionary definition more complete than the one above.
n: 1 an advantage or benefit.
2 financial gain; excess of returns over outlay.
v: 1 be beneficial to
2 obtain an advantage or benefit (profited by the experience). profit and loss account: an account in which gains are credited and losses debited so as to show the net profit or loss at any given time. profit margin: the profit remaining in a business after costs have been deducted. profit-sharing: the sharing of profits especially between employer and employees. profit-taking: the sale of shares etc at a time when profit will accrue. (Latin profectus progress). – Oxford English Dictionary
5. We need the concept of profit in a healthy human society. If we look beyond immediate selfish needs, then we will have to invest in the future, to plan ahead, to take risks. None of these things would be attractive without the concept of profit.
6. Profit means gain, financial or otherwise, and the potential for gain enables us to look to the future.
Profit = Gain
We can profit or gain by:
7. This last example is what I do in my consulting practice.
Profits = Jobs
8. Australia has one of the highest teenage suicide rates in the world. Despair is one of the contributing factors and one of the things some young people despair of is their inability to find a job. Unemployment is a problem not only for Australia but for many countries and it needs to be reduced. Growth is needed to reduce unemployment. The more growth in the economy the more jobs are created.
Profit = Investment
9. What is the role of profits in sustaining growth? Profits are needed for investment capital and investment is fundamental for growth.
10. In his seminal work, Scale and Scope of Industrial Capitalism, Alfred Chandler of Harvard Business School examined the histories of 200 of the largest and most successful manufacturing companies in the US, Britain and Germany over the past century.
11. FACT: A key ingredient in their success was that they all made large investments in the following areas.
1. Production facilities. The investments were large enough to take advantage of economies of scale and scope.
2. People. They made strategic investments in recruiting and organising employees and managers capable of running the enterprise efficiently.
12. Today, these successful companies continue their investment strategy by investing in software, communications and networking facilities to enhance their growth.
13. The detailed research of economic historians, such as Chandler, highlights the importance of profits for long-term success of individual companies. A high level of profits encourages investment, not just in machines, but in the company’s workforce, in R&D, in new methods of working, in distribution and in marketing networks.
Investment = Growth
14. Economic growth depends in part on investment. Capital investment encompasses not only hard assets like plant and equipment but also people – intellectual capital. The more that companies invest in the skills of their workforce the more other companies have to do so to keep up. This sets off a growth cycle. These investment benefits are not only internal for the good of the company but also external for the good of the economy.
Profit = Investment = Growth
15. Investments are usually a fixed proportion of profits. The higher the profits the higher the investments. Profit = investment.
16. Since the rate of investment determines the rate of growth of the economy, the higher the investment the greater the growth. Investment = growth.
17. The underlying growth rate of the economy is determined by the rate of investment, which in turn depends upon the share of profits in national income. Profit = investment = growth.
18. Economic policies to promote growth should therefore aim:
1. either to encourage a higher rate of investment for any given level of profitability or
2. to increase profits.
19. This is why the goals of clever companies have always been long-term profit and long-term growth. These goals were first established in America and subsequently in Japan and Germany. They are still the goals of the world’s most successful companies today and goals which the rising economies of the far east are successfully exploiting.
Profit and Clever Government
20. Clever governments need policies which make for clever people and clever companies. The productivity of clever people and the profitability of clever companies should be more prominent in public policy than it is at present because raising productivity and raising profits is one way to achieve a higher rate of growth in the long term.
21. In the short term, however, higher profits do mean that less income is available to other sectors of the economy, in particular to wage and salary earners whose share of national income is by far the largest of any individual sector. Intelligently balancing the immediate demands of wages against the long-term demands of investment is what makes a clever government.
Profit Means Gain
22. Profit encourages investment in the future by producing a gain or advantage of some kind. List three examples each of how you profited or gained from various investments you have made, both financial and intellectual:
GAINS FROM FINANCIAL INVESTMENTS
GAINS FROM INTELLECTUAL INVESTMENTS
PROFIT MEANS INVESTMENT
When you’ve made a profit from an investment you can either:
1. take the profit or
2. rollover some of that profit in a further investment.
List one example of each of the above from your own experience.
This html-coded online version of the Wombat Final 15/5/06 -- wombatbook.pdf, was prepared by Darlene Sartore with some minor adaptations and color texting, for use only by course presenters certified by Ideal Network Academy. Use permission herein granted from author Michael Hewitt-Gleeson on March 5, 2007.
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