3. FINANCIAL RATIO ANALYSIS 3.1. PROFITABILITY (Ho, 2013) mentioned that the gross profit ratio assesses the gross profit generated per dollar sales. A drop in this ratio can signify more competition in the market, lowering selling prices or a higher cost of purchases. A rise in this ratio can signify that the firm has a competitive edge in the market and so it is able to charge higher prices for its products, or the firm is able to obtain its supplies at a lower cost.
For the economy as a whole, demand pulled inflation refers to the price increases which results from an excess of demand over supply. It is a form of inflation and categorized by the four parts (households, businesses, governments and foreign buyers). When these parts want to purchase greater output than the economy can produce and we need more cash to buy the same amount of goods as before and the value of money falls, so they have to compete in order to purchase limited amounts of products and services. Generally, the demand-pulled inflation result from any factor that increases aggregate demand. Also, an increase in export and two factors controlled by the government are increases in the quantity of money and increases in government purchases
Long run cost curves are U-shaped in light of the presence of economies and diseconomies of scale. Economies of scale are the cost advantages that a firm, or a business when all is said in done, acquires by extending production. At the end of the day, they are spoken to by the diminishment in unit costs over the long run as the extent of the firm – the scale – increases. Diseconomies of scale are the inverse: long-run average costs will in the end start to rise when the measure of the firm turns out to be too much expansive. The most evident reason is that as organizations increment in size they turn out to be harder to control and co-ordinate.
Therefore, when supply of money changes, its value also alters. Because it is in human nature that the more money one possesses, the more one spends, as soon as the demand for certain products rises, the sellers increase the prices. Hence, customers end up obtaining same goods and services for even a higher price than before. So what QTM implies is that the rise in supply of money results in the fall of money’s purchasing value, which in its turn leads to the upward shift in the prices. QTM is expressed by the Fisher equation as: MV=PT 1.
The new relative demand curve would intersect the relative supply curve for labor at a lower relative wage. As a result, the wage relative to the rental falls. The lower wage causes both industries to increase their labor-capital ratios. According to the Stolper-Samuelson theorem, in the long run, when Home opens to trade and faces a higher relative price of cloth, the real rental on capital in Home rises and the real wage in Home falls. In Foreign, the changes in real factor prices are just the reverse.
When firms are optimistic about the future, investment spending increases, and vice versa. Marginal efficiency on investment (MIE) also contributes to the volatility of investment spending in investment. MIE is the expected rate of return over cost of an additional unit of a capital good. When MIE increases, investment spending increases because firms believe that they will get a higher return
Demand is the quantity of a good or service that will be purchased at a particular price . As in the law of demand , If the price of the goods rises , the quantity demanded of that goods decreases . If the price of the goods falls , the quantity demanded of that good increases . A change in demand is the quantity that people plan to purchase when any impact other than the price of the goods changes . When the demand decreases , the demand curve shift leftward .
Moreover, lower interest rate would increase in current account balances by since lower interest rates will raise in aggregate demand and then raise in aggregate demand will cause more imports and thus result in trade deficit. But because of QE is correlation effect between countries means that it is causal inference—when one country imports much, exports will follow. Hence, actually QE effects is result in increased trade balances rather than trade
It deals with how operating profit is affected by changes in variable costs, fixed costs, selling price per unit and the sales mix of two or more different products. i. Project planning Profit planning assists in finding the most profitable combination between selling price, cost and volume, and hence it enables calculations of profit at different sales levels. It assumes that sales volume is the primary cost driver. Therefore, managers need to take measures to increase profits by reducing costs, especially variable costs per unit, which vary with the level of activity.
First, the demand for real money balances (L) is positively related to the level of income (Y), as people will hold more money to finance their increased expenditures but it is also negatively related to the interest rate (i), since the interest rate is the opportunity cost of holding money rather than bonds. The equation for real money demand can therefore be written as L = kY - hi ( k > 0 and h > 0 ) Then real money supply, that is, nominal money supply (M) divided by the price level (P) is set equal to real money demand to achieve an equilibrium in the money sector. In other words, the equation of the LM-curve is derived in the following way. (M/P) = L = kY – hi Writing above equation in terms of i i = (1/h)[kY - (M/P)]. An increase in income will increase the demand for real money balances.