Business Math Theory Part - All about trade, discount, cost, profit, time value of money, investment
Date: 2/1/2021
Trade is a term that already
appears while before the civilization has appeared. However, the element in the
trade before and now was different. In before, there was a system called the
barter system which is actually the predecessor of the concept of trading.
Though there was no specific currency that been create, recognize, and use
officially by all the people through the different areas. And so, this barter
system was actually not a good method for trade is because it actually facing
difficulty to measure the value of the item for trading. For example, you would
not know how many pieces of paper to exchange with the food can be count as fair
trade. While the time ahead, about the 17th and 18th centuries, the first
worldwide currency has been found which was the silver Spanish Dollars. It was
also known as the “eight-real coins” or “pieces of eight”. Slowly, this concept
has been flowed to other countries such as Asia and Europe and become the first
worldwide currency that been officially used by most people.
The new concept of trade has
begun because of the new worldwide currency, people use the “money” to exchange
for the product. This new type of system has been named as the monetary system.
The most significant benefit of the monetary system is it could have a better
measurement of the product value, and it will make the exchange, purchasing,
and sell in the trading become much easier. The monetary system has actually
tagged each item or product, goods with a specific value. For example, one
bread is 3 dollars, and pieces of paper are pricing at 0.1 dollars, so that
trader can exchange 30 pieces of paper with 1 bread. Simple conclude that the
monetary system has created the trader with a more fairly trading
While the monetary system has
been spread through the world, there were many of the enterprises has been
appearing, and everyone starts to think and figure out how to make more profit
or find the bug from this system especially the value tagged to some of the
product. This is because at the first start of the monetary system has been
used, there were many more of the product can’t be tagged with a suitable price
yet. These problems were quite serious at first start and many enterprises have
obtained a huge benefit from it.
After the technology of
civilization has been improving more, long-term trading such as between state
or country has become much easier. So that the trade has become a more complex
and more potential benefit. After the cumulative of the time of trading, it has
slowly formed a trade rule, knowledge, and become a fixed, complete system for
trade. There were many supportive techniques, tools that been created to
provide support for the trading between the seller and buyer.
One of the supportive
techniques was the pricing technique which is the discount. In trading,
discount Is the most effective and common pricing technique that been used to
attract the customer and increase the sales or clear the stock so on. The discount in the trade can be categorized
into many types. For example:
There was actually many more of other types of discount such as the buy one free one-break discount and so on. Every type of discount has its own differences in the time to use and the effect that each type of discount will have.
Although, what element to be considered while being in the trade. First, it will be your cost. The cost was the expenditures that an enterprise will pay for or made for the purpose to run and operate the business or you can name it as the input of the business. There was cost everywhere in the business, such as production cost, labor cost, utility cost, and so on. However, the cost can actually categorize into few more types which is:
Literally, there are many
more types of discounts based on the circumstances. However, while the seller determines
which discount to use to attract the customer it would also consider another
important factor related to discount which is the profit. Profit is the money
that the business obtains after reducing all of the expenses or costs.
Profit is always the primary
goal of business, there want to earn more money and increase their company
value. So that the profit also becomes a type of measurement method to tell if
the company or business work well, have a good performance or not. The profit also shows that how effectively and efficiency that the company uses their revenue
and capital or asset.
Typically, the profit could
divide into three common types with the formula which is the:
|
Gross Profit（毛利） |
·
Gross profit= total
sales – the cost of goods sold ·
Gross profit margin=
(Revenue-cost of goods sold) / revenue |
|
Operating Profit（营业利润） |
·
Operating Profit=Gross Profit-operating expenses ·
Operating profit margin= operating profit / total sales |
|
Net profit（净利） |
·
Net profit= operating
profit- taxes and interest |
Another factor to consider
while in the trade should be the time value. The element of the time value was absolutely
important in long-term trading but also quite important in short term too.
Time value of Money is referring to the currency fluctuation that changes the
money value time over time. Usually, the time value of money will be an influence
by:
o
Number of the time period时间段数
o
Interest rate利率
o
Present Value目前的价值
o
Future value未来价值
o
Opportunity cost机会成本
o
Inflation rate通货膨胀率
o
Country policy国家政策
o
Economic situation 金融情况
The time value of money is the focus to measures how much of the actual
real money value would people have in the future or present to find out which is
more worth or suitable. The calculation of the time value of money could help
people to figure out they want to have that money today with the present value
of having the money in the future with the future value. For example, if you could
receive $100,000 now or in the future maybe a few years. Most people would choose
to have it now and this was actually correct and beneficial. This was all about
the opportunity cost. In more detail, if you had $100,000 now, you could take
it to invest stock and wait for the stock to go mature and grow, you could also deposit
in the bank to gain potential interest, build house or buying assets so on. Those asset
or stock was an opportunity and if they grow it would probably have a bigger
value than the $100,000. However, if people choose to have this $100,000 in
future, he will probably miss all of these possibilities which mean he will
have a high opportunity cost.
So that while the enterprise is trading, they would more likely to
have a full payment rather than the installment payment. This is because they actually
handle a high opportunity cost if they do much of the installment payment. This
is also why that the installment would come with the interest, which is to
cover back the opportunity cost. Although, the opportunity cost is hard to
determine and find out some time, and cause the interest rate also to become
harder to set it up
While talking about the opportunity cost, it would also come with the
investment. The investment such as buying stock and share is actually also a
type of trading, but it was not trading between product and money just like usual.
The investment is actually the trading of the opportunity cost, it was a bit
similar to gambling, but it was well-founded and controllable gambling.
People could invest with money, can invest with item or asset too. For example,
people could invest in a factory with few machines or pay a hundred thousand for it
as an investment. The investment mainly is not for the immediate return, it would
more to a long-term or long-run effect. Investment is actually based on the
hope of the investor and trues to the investee. Investors hope to get a better
payback in the future compares with how much it input in present. Investment can
refer to the future generating benefit such as the stock, share, bonds, dividend,
property, and so on.
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