Business Concepts – 101

This is going to be the first post of a series of posts related to the various topics that will get covered during my MBA courses. I was kind of thinking of doing this anyway, but it’s a requirement as well for one of the papers, so I think it’s going to somewhat force me to be more diligent about creating theses posts on a more regular basis

BUS 501: Business Perspectives #1

In the first module we are covering basic business concepts, including topics like:

• What’s the value of a business, financial statements,
• Vision, Mission and Values of a company
• Business Ethics
• Leadership

Not having an economics background, one topic I found interesting and intriguing was the distinction between economic profit and accounting profit. I was somewhat familiar with the concept of ‘profit’, but now I understand that the default reference is to accounting profits.

Essentially:

Accounting Profit = Total Revenue − Explicit Costs (this is what accountants, and our tax prep advisors call ‘profit’, and most likely the only ‘profit’ most people know about)

Economic Profit = Total Revenue − (Explicit Costs + Implicit Costs); where implicit costs also take into account the opportunity costs, including those not explicitly captured (and therefore not reflected in any accounting records)

I will need to keep this in mind if I ever get to talk to an economist about ‘profits’ 🙂