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A company’s earnings are, quite simply, its profits. Take a company’s revenue from selling something, subtract all the costs to produce that product, and, voila, you have earnings! Of course, the details of accounting get a lot more complicated, but earnings always refer to how much money a company makes fewer costs. Its many synonyms cause part of the confusion associated with earnings. The terms profit, net income, bottom line, and earnings all refer to the same thing.

Let’s assume your company is now experiencing a positive and steady rate of earnings. As a small business owner, you should learn how to invest these profits wisely to grow your business, increase profits, create diversification, reduce risk and boost your potential for returns. It’s important to be open to new ideas and experiment with different strategies to improve your profitability.

Your task now is to figure out how you will use those earnings to generate some kind of positive return.

Following what you’ve written so far, answer the following question as it relates to your developing organization:

1. How will you balance investing your business’s profits between outside investments and reinvesting them within the firm? Discuss the positive and negative aspects of both types of investing, specifically how they relate to your business.

2. Under what circumstances would it make more sense to use earnings to buy down existing debt?

Use what you have learned on investing earnings to answer this question in narrative form. Again, your response to the above questions should be between a total of 400-600 words. You will be graded on accuracy of content/concepts used, feasibility, and finally the organization and presentation of the writing. Please refer to the rubric posted on Canvas for more detail on grading.