Answer to Question #188201 in Microeconomics for theraja

Question

Profit is the maximum value a company can distribute during the year and still expect to be worth as much at the end of the year as it was at the beginning. Discuss this statement , and comment on its value in measuring profit for decision making

Answer 1

Profits value the company as they increase the overall share prices and thus market capitalization and subsequently the enterprise value can change dramatically.

Measuring profits helps management decide on dividend payments and total free operating cash flows and mutually decide on employee stock options.