The Golden Rule Of Economics

Table of contents:

The Golden Rule Of Economics
The Golden Rule Of Economics

Video: The Golden Rule Of Economics

Video: Golden Rule Level of Capital & Savings Rate - Solow Model 2022, December
Anonim

Economics, like any other scientific discipline, has its own laws and rules. Therefore, the activity of any enterprise can be objectively assessed by some criteria that characterize its business activity. For this assessment, the "golden rule of economics" is often used.

The golden rule of economics
The golden rule of economics

Business activity of the enterprise

Stable financial position, high creditworthiness of the enterprise, its stable position in the market is largely determined by its business activity. It is characterized by many specific indicators by which one can judge the qualitative and quantitative criteria of its activities: the volume of sales of products and services, the breadth of sales markets, profits, and the value of net assets. The business activity of an enterprise is also characterized by such indicators as the rate of turnover of its funds, good business reputation, the degree of fulfillment of the plan according to the main criteria of the effectiveness of its economic activity, the level of efficiency in the use of available resources and stable economic growth.

Of all these criteria, only a few can be selected in order to judge with confidence about the business activity of an enterprise using well-known economic laws. For this, in world practice, a pattern is most often used, which is called the "golden rule of economics".

What is the essence of the "golden rule of economics"

Any enterprise, regardless of what it produces - products or services, operates in a closed cycle: production of products and services - their sale - making a profit - expansion of production of products and services. The “Golden Rule of Economics” makes it possible to assess the economic potential of an enterprise according to three criteria that characterize this cycle. It uses indicators such as:

- Tbp - growth rate of balance sheet profit;

- TV - topics of revenue growth (sales volume);

- Тк - the growth rate of the amount of assets, consisting of the fixed and working capital of the enterprise.

The criterion of business activity and efficiency of the enterprise is the ratio: Tbp> Tv> Tc> 100%, which means that the economic potential of the enterprise has increased compared to the previous period.

When evaluating the business activity of an enterprise, it should be borne in mind that the period for which the assessment is made should be quite large, because part of the profit can be invested not in renewable production, but, for example, in investments or in the development of a new field of activity, which will pay off only after some time. -that time. The easiest way to be convinced of the correctness of this pattern, considering the activities of small industries, but the existing economic experience has already shown that it is infallibly applicable to the activities of any company, regardless of the volume of its turnover.

Popular by topic