Читать книгу Investing All-in-One For Dummies - Eric Tyson - Страница 50

The goal of most companies is to make money or earnings (also called profits). Earnings result from the difference between what a company takes in (revenue) and what it spends (costs). We say most companies because some organizations’ primary purpose is not to maximize profits. Nonprofit organizations, such as colleges and universities, are a good example. But even nonprofits can’t thrive without a steady money flow.

Companies that trade publicly on the stock exchanges seek to maximize their profit — that’s what their shareholders want. Higher profits generally make stock prices rise. Most private companies seek to maximize their profits as well, but they retain much more latitude to pursue other goals.

Among the major ways that successful companies increase profits are by doing the following:

 Developing new and better products and services: Some companies develop or promote an invention or innovation that better meets customer needs. We have smartphones, 3D printers, electric cars, online investing through low-cost mutual funds, fast casual restaurants that can serve up healthy food at a decent price in just minutes — the list goes on and on.

 Opening new markets to their products: Many successful U.S.-based companies, for example, have been stampeding into foreign countries to sell their products. Although some product adaptation is usually required to sell overseas, selling an already proven and developed product or service to new markets generally increases a company’s chances of success.

 Expanding into related businesses: Consider the hugely successful Walt Disney Company, which was started in the 1920s as a small studio that made cartoons. Over the years, it expanded into many new but related businesses, such as theme parks and resorts, movie studios, radio and television programs, toys and children’s books, and video games.

 Building a brand name: In blind taste tests, popular sodas and many well-known beers rate comparably to many generic colas and beers that are far cheaper. Yet some consumers fork over more of their hard-earned loot because of the name and packaging. Companies build brand names largely through advertising and other promotions. (For Dummies is a brand name, but For Dummies books cost about the same as lower-quality and smaller books on similar subjects!)

 Managing costs and prices: Smart companies control costs. Lowering the cost of manufacturing their products or providing their services allows companies to offer their products and services more cheaply. Managing costs may help fatten the bottom line (profit). Sometimes, though, companies try to cut too many corners, and their cost-cutting ways come back to haunt them in the form of dissatisfied customers — or even lawsuits based on a faulty or dangerous product.

 Watching the competition: Successful companies usually don’t follow the herd, but they do keep an eye on what the competition is up to. If lots of competitors target one part of the market, some companies target a less-pursued segment that, if they can capture it, may produce higher profits thanks to reduced competition.