Economic Growth of the United States - Assignment Example

Name Course Tutor Date Question One The paper discusses about economic growth of the United States based on the gross national product of the country. The gross national product of a country is derived from the growth of the various factors of production of a country or from the gains achieved in production. It addresses the growth of the American economy for the last half century indicating that the gross national product has grown at a rate of 3.5%. Conversely, the growth of the gross national product per capita for the same period of time has stood at 2.0%. In addition, the 3.5% growth in the economy can be attributed to an increase in the productivity at a rate of 2.8% as well as a 0.7% increase in the labour force of the country. Despite this growth, there has been a recent decline in the growth of the economy from t recorded 3% to a dismal 1% annually due to a decrease in the amount of technological progress, low saving rates, a decrease in the quality of labour, and an aging capital stock. For a country to record high economic growth rates and high capital formation levels, it has to have high savings rates that are characterized by low consumption levels that enable the country to invest in superior means of production which in turn result in to an increased future output. In the American case, there has been an emphasis on high rates of consumption in addition to a short term emphasis on profits for most businesses. This scenario has resulted in decreased investments coupled with a lack of the willingness to save within the American population. Of concern is the ill effect of the continued economic growth especially on the environment and a materialistic culture that has been fostered within society. There are numerous environmental issues such as climatic change, land overuse and pollution of both the air and water that have developed as a result of increasing growth in the economy. In addition, the overdependence on energy to drive the economy has negatively impacted on the environment. Most of the energy used currently is derived from fossil fuels that have a finite supply hence the need to come up with new ways of producing the required energy. The use of renewable sources of energy such as solar, hydro, wind, geothermal, and biomass is necessary so as to ensure that there is no overdependence on fossil fuels that are affecting the environment through the production of green house gases that lead to global warming. Arguments for and against economic growth and the use of renewable energy are available from various studies that have been carried out. Studies that support economic growth have found that demographic changes occur that have resulted in smaller families translating to reduced population growth rates especially in the developed countries. Those against economic growth argue that high population growth rates usually surpass the rate of production while the resources used in the production process are not increasing (Foley, 1999). In addition, the dependence on energy to drive the production process has impacted negatively on the environment and therefore the need for using renewable sources of energy that resulted in limited or no environmental pollution. There are several business strategies that may address these issues. The first is the development of businesses that are targeting the use of renewable energy so that they are able to develop these resources for large scale use. These businesses will be concerned with the best methods of harnessing the various natural renewable sources of energy in the most efficient ways that ensure minimum environmental degradation. Secondly, policies need to be developed that address the use of fossil fuels so as to curb further production of green house gases that affect the environment. Thirdly, there is need for businesses to get involved in corporate social responsibility so as to ensure that they look after the environment that they could have degraded through pollution using the various wastes that they could be producing during their production processes. Business and management opportunities that could arise from this topic area are numerous as these problems point towards a new approach towards economic growth that is based on the use of better sources of energy that are not detrimental to the environment. The use of renewable sources of energy requires new investments which will require the creation of new business that will be tasked with the development of viable business methods of tapping and utilizing these renewable sources of energy (www.worldwatch.org). In addition, this will be a creation of new jobs for the economy since it will require both skilled and non skilled labour force to work in these new business ventures. Further research is needed in this topic due to the great importance that it poses to any economy in the world irrespective of the country. This is because economic growth is of importance and therefore should be achieved in a manner that will not negatively affect the environment in which businesses carry out their activities (Jones, 2002). As such, new research should be directed at finding ways that businesses can become more environmental sensitive in their activities so as to ensure that there is limited or no environmental degradation. In addition, research could be done to find new ways of utilizing new forms of energy sources such as nuclear, solar, wind, and geothermal could be used effectively to support energy needs of the economy. Question Two Company X has provided the following business data for the previous accounting periods as shown: Income statement / Profits / Earnings Margins The above data represents the profits/earnings margin of the company in a financial statement referred to as income statement. An income statement is a financial statement that presents a firms income for duration of time, normally a fiscal quarter or fiscal year. The given data represents a summary of the income analysis of the company beginning from the year 2006 to 2008. It gives the report in two phases; that is, the first phase or half of the year ending in 1st April of every year and the second half ending in 30th September of the year. The report shows that there is a relationship between the three parameters; sales revenue, profits (losses) and equity. Equity refers to the net assets of the company (Harry, 2004). A large figure of the sales revenue leads to an increase in the company equity due to a profit margin of the company as seen in the report of the full year ending in 30th September 2006. A decrease in the volume of sales leads to a decrease in equity due to a loss in the company as seen in all the other periods. Income is thus defined as the measure of a firm’s earning performance for a particular period. The income statement entails an analysis of all the income related terms such as profit and loss margins, earnings (sales revenue) which are recorded in a profit and loss statement (Jan, 2008). Just like the data above, the income statement heading will show the time period it reports on, with a statements such as  ". . . for the year ended 31 December 2011," or ". . .  for the quarter ended 31 June 2011." This is different from the balance sheet which indicates the status of assets, liabilities and the equities of the business in a specified duration of time. It can be noted that income is also referred to as profits, earnings or in some cases the bottom line. In many cases, the income statement is referred to as profit and loss statement. A firm goal and a Public Performance Measure Publically traded firms are (those that sell their shares of stock to the public) are requires to report their financial performance and financial position either quarterly and/or annually. Private owned firms may not reveal this information to the public. In rule, profit making firms are ran with the aim of making profits. The profit is either used in expanding the firm in a process referred to as retained earnings or is distributed to the shareholders (Angelico, 2000). The income statement thus illustrates how income figures resulting by deducting the firm’s cost and expenses from its total sales (Revenue). This is illustrated by the equation; Income = All Revenues – All expenses and costs The indicated income, revenues and expenses do not need to show the real cash flows and outflows since regulatory agencies allow or require firms to apply conventions like depreciation costs, allocated costs, and accrual accounting on the income statement. The real cash flows including the profits or gains are recorded in a more specific financial instrument referred to as the cash flow statement or the statement of the firm’s changes in financial position. Business strategy Detailed example of Income Statement for a manufacturing firm  Grande Corporation   Income Statement for Year Ending 31 December 2011       Figures in 1,000s  Gross sales revenues.................33,329    Less returns & allowances..........   346  Net sales revenues...........................32,983  Cost of goods sold    Direct materials................... 6,320    Direct labor....................... 6,100    Manufacturing overhead      Indirect labor........... 5,263      Depreciation, mfr equp...   360      Other mfr overhead....... 4,000      Net mfr overhead................. 9,623      Net cost of goods sold...................22,043  Gross profit.................................10,940  Operating expenses    Selling expenses      Sales salaries........... 4,200      Warranty expenses........   730      Depreciation, store equip   120      Other selling expenses...   972      Total selling expenses........... 6,022       General & admin expenses      Administration salaries.. 1,229      Rent expenses............   180      Depreciation, computers..   179      Other gen'l & admin exp..   200      Total gen'l & admin exp.......... 1,788        Total operating expenses..............  7,810  Operating income before taxes...............  3,130  Financial revenue & expenses    Revenue from investments............  118    Less interest expense...............  511      Net financial gain (expense)............  (393)  Income before tax & extraordinary items.....  2,737    Less income tax on operations.............    958  Income before extraordinary items...........  1,779  Extraordinary items    Sale of land.................  610    Less initial cost............  145      Net gain on sale of land..........  465    Less income tax on gain ............  118      Extraordinary items after tax............   347  Net Income (Profit).......................... 2,126 Three Kinds of Profits (Three Margins) Bottom line net income is the value of the financial performance of a firm for the period, but the income statement entails other performance metrics as also. Gross profit results from the difference between net sales and the cost of the goods sold. Operating profits or operating income is the net income from the firm’s business activities (Barry, 2007). These can also be illustrated as percentages as shown by the table below Income and Financial Statement Metrics The term financial metrics describes the analysis carried out on financial statement figures and also the cash flow estimates in the firm and investment analysis. The term metric thus refers to measurements. Financial statement metrics have various applications. Liquidity metrics assess the firms preparedness to address its short term obligations Activity metrics like the inventory turns evaluates the firm’s use of its resources Operating margin assess the firm’s profitability Growth metrics like the cumulative growth rate for sales assess the firm’s growth for a certain period of time. Works Cited Barry, J. Interpretation and Application of International Financial Reporting Standards, Oxford: Oxford University Press, 2007. Energy for Development: The Potential Role of Renewable Energy in Meeting the Millennium Development Goals. pp. 7-9. Retrieved May 27, 2010 from http://www.worldwatch.org/system/files/ren21-1.pdf Foley, D. K. Growth and Distribution. Cambridge, MA: Harvard University Press, 1999. Harry, I. Accounting Theory: Conceptual issues in an economic environment. London, SAGE. 2004. Angelico, A. et al., Finance. Oxford: Oxford University Press, 2000. Jan, R. et al, Financial and managerial Accounting, New York: E. J. Brill, 2008. Jones, C. I. 2002. Introduction to Economic Growth. (2nd ed). New York: W. W. Norton & Company. LEVIN, J. & Tadelis S. "A Theory of Partnerships," Stanford Institute for Economics Institute for Economic Policy Research Discussion Paper, August 2002. http://siepr.stanford.edu/papers/pdf/01-28.pdf  Read More