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RELATION BETWEEN INVESTMENT AND PROFITABILITY –

Investment is the practice of contributing your money (or capital) in general towards a larger asset, pool, fund, business or project. The hope is that asset, fund or project will grow in value in which case the piece of the pie will grow, which would mean profit or income for you. A high level of investment intensity may increase the profitability of the customer, which will move the customer towards financial efficiency. Investment intensity represents an important variable that signals future probability. Analytically, profit is directly proportional to investment; on the other hand, profit is directly proportional to time – so, ratio of profit is directly proportional to product of investment and time. Income can be generated by investment in two ways – appreciation and income. Appreciation occurs when an asset increases in value. An investor purchases an asset in the hope that its value will grow and they can then sell it for more that they bought it for earning a profit. Investment depends upon the real interest rates, future profits, current profits (due to cashflow and credit constraints and which may depend upon nominal interest rates) and the value of collateral. Induced investment refers to that investment which changes as the level of income changes in the economy. Therefore, it is the type of investment that depends on the level of income in the economy. The top profit drives common to most businesses including – increasing sales (turnover) improving gross profit by either increasing price or reducing input costs, reducing overhead expenses by improving efficiency. The profit-margin is calculated taking the company’s net profit (total revenue minus total expenses) and dividing that by total revenue. The result is percentage form determines that how profitable actually the investment was over a period of time.