Economic efficiency
Economy is a general measure of efficiency in terms of cost -effectiveness, or for the rational use of scarce resources. It is commonly defined as the ratio between the achieved success and necessary funds use. The goal is, with a minimum of effort to achieve a given income or with a given effort to achieve the greatest possible return.
This can be illustrated with the following formula:
Where:
- Yield = measured in monetary values increase at the time of observation
- Effort = measured in monetary value of all consumed goods and / or services
Efficiency is achieved when the ratio of income and expenses is equal to or greater than 1.
- If the result is greater than 1, an economy is given - values increase
- If the result is equal to 1, so the efficiency is given - to cover costs
- If the result is less than 1, then no cost is given - Loss
Difference between efficiency and profitability
Profitability is the ratio between erzieltem success ( eg profit ) and capital employed (total or equity ). Here, the capital, that is, measured in monetary value, set in relation. The ratio is a measurement for success and is expressed as a percentage.
In the economy of the income can be used as values only increase as the value of goods sold or services rendered only as a monetary value. The penalty also in work hours, material requirements or other services are translated, used in monetary value. The efficiency is a measure of economy or efficiency; It is dimensionless.
The synonym for profitability, among other economy.
Efficiency in production planning
The production and cost theory forms the theoretical basis of production planning.
The cost theory has to determine the destination, the most cost-effective method for a given amount of product. The ratio of the cost theory is the economy.
Where:
- Revenue = measured in money value that was generated by the sale of goods ( products ) or services and from rental or leasing.
- Cost = the measured in monetary value of all goods and services consumed in the production of a given quantity of products.
Again, the cost is given if the quotient of revenue and expenses is equal to or greater than 1. If the result is equal to 1, was only produced to cover costs.
Assessment of the soundness of a company
An assessment and control of the profitability of a company can be made possible by handling figures. The costs are compared with the benefits.
Envelope key figures are:
- Inventory turnover
- Average duration of storage
- Turnover frequency
- Average credit period
Method of economic calculation in investment accounting
The business case examines one or more investment candidates on their advantages in investment under certain conditions.
In the capital budgeting static or dynamic process of economic calculation are applied.
Static methods of economic calculation are:
- Cost comparison
- Profit comparison
- Return on Investment Calculation
- Amortization calculation
Drawbacks of static methods are:
- Short-term approach
- Non-consideration and timing of receipts and payments
Dynamic process of economic calculation are:
- Net present value method
- Annuity
- Internal rate of return
- Endwertmethode
- Market interest rate method.
Take into account the dynamic method
- The evaluation of deposits and withdrawals in accordance with their time of occurrence
- Accurate recording of receipts and payments during the life of
In the private sector not the greatest possible economy but the largest possible profit is sought in the rule. This has, depending on the type of market consequences for the efficiency of the private sector.
"On the Mengenanpassermarkt the pursuit of profit and the pursuit lead to profitability identical results. It is different for example when monopolist that restricts the quantity offered and yet - offering to uneconomic costs - maximizes his profit. "