Financial Analyst of Pine Grower

Question: Discuss about theFinancial Analyst of Pine Grower. Answer: Introduction The report is intended show the discussions based on the several types of the analytical tools used for the given case. The study has depicted the different types of the considerations, which will be able to scrutinizing the accounting profit and the economic profit. Accounting profit is seen to utilize the actual gains or losses and these comply with the GAAP. This value is often termed as total revenue earned by a company after the company deducts explicit costs of producing goods or services. Some of the explicit costs are identified as wages of the employees, cost of raw materials and rent[1]. Economic profit on the contrary is not determined by accounting standards and the entire concept is based on the application of the economic principles. Along with the explicit cost, economic profit is also discerned to take into consideration the implicit costs. These costs are which take into consideration the factors, which are related to the opportunity costs and are normally regarded as the individual resources of the company[2]. For instance, in case company had $100,000 as revenues and $30,000 as explicit costs, its accounting profit would be $70,000. In case, the company also had $10,000 in implicit, or opportunity costs. However, economic profit would be $ 60,000. Another method has been further seen in form of price elasticity of demand. This is used to depict the responsiveness of the quantity demanded in terms of the percentage change in the product or the services offered by a particular company, ceteris paribus[3]. Analytical Development The analytical development has been shown with the use of the different types of the methods ranging from accounting profit, economic profit and price elasticity of demand. In the section of the accounting profit, the consideration of the explicit expenses has been shown with the consideration of materials, wages, rent on building, lease of equipments, insurance and utilities. The computations in this section have been also able to show that Implicit cost costs such as Opportunity Cost of Capital and the Forgone Wages of the employees is not applicable while the computation accounting profit[4]. The analytical development performed in terms of the Economic Profit has been seen with the different types of the consideration seen in terms of the inclusion of implicit expenses. Implicit expenses are seen in terms of the inclusion of Opportunity Cost of Capital of $ 1500 and Forgone Wages of $ 26,000. In this case, the Total Implicit Expenses has been observed to be $27,500 and the same has been excluded while the computation of the profit. Hence, the economic profit has been observed to be $ 20,500. Hence, it can be observed that despite of accounting profit of $ 48,000 the consideration of the various types of the explicit cost in the economic profit has lowered the overall profit of the company[5]. The main aspect of this difference in the computation of is evident due to the consideration of opportunity cost, which is seen to be equal to what the firm is seen to give up (Please refer to appendix 1). The analytical development model prepared based on the accounting profit has excluded the consideration of that Implicit cost costs such as Opportunity Cost of Capital and the Forgone Wages. The implicit cost has been observed to be $ 48,000. (Please refer to appendix 2) Hence, it can be observed that economic profit is the difference of the total opportunity costs of all the resources used by the firm and difference of the total revenue, which has been received by the firm from the sales activity. On the other hand, accounting profit has taken into consideration the total revenue amount less the property chargeable against goods sold [6]. The price elasticity model has been able to depict the percentage change in demand of a particular product and service in terms percentage change in the price of the product. In this aspect, the price (P1 and P2) of the two commodities is considered as $ 200 and $ 150[7]. The two quantities (Q1 and Q2) of the commodities have been further taken into consideration as 500 and 400 units. The formula used for the Price Elasticity of Demand is (Q1-Q2)/ (Q1+Q2)]/ (P1-P2)/ (P1+P2)]. By using the aforementioned price elasticity, function the total price elasticity of demand of the two commodities has been computed to be 0.77[8]. Conclusion The report has been able to suggest on the use of economic profit, accounting profit and Price Elasticity of Demand. This has been able to suggest further on consideration of the implicit cost and explicit cost. The total profit inferred from the consideration of the accounting cost of products is higher as the implicit expenses such as Opportunity Cost of Capital, and Forgone Wages has not been included in the analysis. This has led to lower accounting profit of the firm. The different types of other aspects of the study have been further able to suggest on the various types of the consideration, which has been made in terms of the price elasticity of the demand. The developmental analysis has been able to suggest the difference in the accounting profit and the economic profit. The main recommendation can be seen in form of the lowering the forgone wages amount, which will lower the Total Implicit Expenses and increase the economic profit. Reference List "Difference Between Economic And Accounting Profit".Boundless(2016):. Web. 28 Feb. 2017. Cellini, Stephanie Riegg, and Claudia Goldin. "Does federal student aid raise tuition? New evidence on for-profit colleges."American Economic Journal: Economic Policy6.4 (2014): 174-206. Grant, Robert M.Contemporary strategy analysis: Text and cases edition. John Wiley Sons, 2016. Hirschey, Mark.Managerial economics. Cengage Learning, 2016. Kaplan, Robert S., and Anthony A. Atkinson.Advanced management accounting. PHI Learning, 2015. Lavoie, Don. "The discovery and interpretation of profit opportunities: Culture and the Kirznerian entrepreneur."Culture and Economic Action48 (2015). Storey, David J., et al.The performance of small firms: profits, jobs and failures. Routledge, 2016. Zucman, Gabriel. "Taxing across borders: Tracking personal wealth and corporate profits."The Journal of Economic Perspectives28.4 (2014): 121-148.