What is business

    Business is the word that is commonly used in different languages.

But exactly what does it mean? Traditionally, business simply meant

exchange or trade. Today the definition of business is production,

distribution and sale of goods and services for profit. To examine this,

we will look at its various parts.

    First, production is creation of services or changing of materials into

products. One example is conversion of iron ore into metal car parts.

Next, these products need to be moved from the factory to the

marketplace. This is known as distribution. Third is sale of goods and

services. Sale is exchange of products or services for money. Goods

are products that people either need or want. Services, on the other

hand, are activities that a person or group performs for another person

or organization.

    Business, then, is a combination of all these activities: production,

distribution, and sale. However, there is one more important factor. It is

the creation of profit or economic surplus. A major goal in functioning of

a business is making profit. Profit is a difference between the price

charged for an item and the cost of the item to the seller: profit = price

– cost.

    In business, profit is most frequently considered in term of net or

retained profit. This is the amount of money left at the end of the

financial year when all expenses are paid: net profit = revenue – total

costs.

    Revenue is sometimes called a turnover, sales or income. It refers

to the total sales over a period of time (often a month or a year). It can

be expressed as: revenue = price x quantity. So, the price charged

multiplied by the number of units over a period of time is the total sales

value, or revenue.