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The Finance Book by Si Hussain, Stuart Warner

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23 Profitability performance measures

‘Profit is not the legitimate purpose of business. The legitimate purpose of business is to provide a product or service that people need and do it so well that it’s profitable.’

James Rouse, US real estate developer, civic activist and philanthropist

In a nutshell

Profit is often thought to be the main purpose of a business. However, even more important is the amount of profit relative to the investment required to generate that profit.

Therefore, return on investment, as opposed to profit alone, is a superior measure of commercial success.

To achieve long-run viability a business must ensure that its return on investment is greater than its cost of finance.

Need to know

Why is this important?

To ...

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