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Economic performance is a broad term that includes all the monetary achievements and failures of a company, particularly in regard to sales and profits. A company that is turning a profit would generally be said to be performing well. A company that is not turning a profit would probably be said to be performing poorly. Economic performance is a key indicator of the probable success of a business and often plays a role in access to credit and the ability to attract investors.
Two primary factors make up economic performance: sales and profits. Sales are represented by the gross monetary value of all the products and services sold during a given period. Profits are the residual sales monies left after all costs and expenses are paid. This includes hard costs, such as the purchase of materials; soft costs, such as labor expenses; and may also include a set amount of reinvestment funds.
In many cases, such performance is evaluated against a benchmark. This can be performance from a past period, goals set by senior management or a national or industry average. When this happens, a company turning a profit might still fail to perform up to expectations. This means that, while the business is making money, it isn't making as much as anticipated.
A number of factors can affect economic performance. Sales of products and services is the primary factor. Sales can be affected by manufacturing, marketing, customer perception, pricing strategy and entry of new competitors into the marketplace. Any change in the company's primary industry can affect its economic performance.
Another major factor affecting economic performance is expenses. A company that does not plan expenses well, or one that encounters unexpected challenges, may not perform as well as expected, even if it meets its sales goals. Examples include higher than anticipated materials costs, uninsured losses and remake expenses associated with employee error.
Many professionals consider economic performance to be the primary indicator of a company's overall viability. Companies that perform poorly can generally expect to pay more for credit, have less access to credit and have a hard time attracting investors. For publicly traded companies, this can also lead to a drop in stock prices. The most qualified employees may be hesitant to accept employment at poorly performing companies, and cutbacks may fuel additional performance issues.
Companies that perform well, on the other hand, often have increased access to credit and investors. Their stock prices often rise and they generally have the resources to hire solid talent and purchase technological upgrades. This can help them continue to better their performance in the future.
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