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  • What Triggers Economic Recession: Definition, Causes, and Impact on Society

    What Triggers Economic Recession: Definition, Causes, and Impact on Society

    In measuring the development and progress of a country, of course the main reference or indicator is how much economic growth is.

    Meanwhile, the level of economic growth can be seen from the value of the Gross Domestic Product (GDP) in the country.

    If the GDP is low and continues to decline for months, it can trigger an economic recession . What is an economic recession?

    Understanding Economic Recession

    A recession or slump is a condition marked by a decline in the wheels of the economy due to the weakening of the value of Gross Domestic Product (GDP) for six consecutive months in the same year.

    A recession is marked by a significant decline in economic activity that lasts for several months. An economic recession can also be defined as a major slowdown or contraction in economic activity.

    Recession is marked by the value of economic growth reaching 0% and can even reach minus in its worst condition. This condition can certainly disrupt the economic system and threaten the survival of the community.

    A recession can be characterized by high unemployment , falling retail sales, and a prolonged contraction in manufacturing earnings.

    Characteristics of an Economic Recession

    This economic disaster certainly has certain characteristics, the following are the characteristics:

    1. Gross Domestic Product (GDP) continues to decline.
    2. The real income of the people is decreasing.
    3. The decline in sales and manufacturing production , many goods are not sold and piled up in factories.
    4. The unemployment rate is getting higher, while there are fewer jobs.
    5. People’s purchasing power or consumption is low.
    6. Economic growth has slumped for two consecutive quarters.

    Causes of the Economic Recession

    This decline in economic conditions and GDP is certainly caused by many factors, including:

    1. Inflation

    Inflation is a condition in which the price of goods increases continuously. This is actually not a bad thing, but if this price increase occurs excessively or significantly, it will certainly have an impact on society and cause a recession.

    If the price of goods for public needs continues to soar to the point where people are unable to carry out consumption activities and cannot fulfill their needs, then this can be a disaster for the country.

    2. Deflation

    The opposite of inflation, deflation is a condition in which the price of goods continues to experience a significant decline. This will have a similar impact, because if production prices fall, wages will also fall and suppress market price stability.

    Deflation has more of an impact on business owners. If this condition continues, many companies will not be able to continue their business and lead to bankruptcy. This will certainly have an impact on the destruction of the economic system.

    3. Asset Bubble

    An asset bubble is a situation where the impact can be enormous. This condition occurs because there are many investors who are competing to buy shares when the value is high, and competing to sell them when the economy is in disarray.

    Another name for this situation is irrational excitement. This joy comes when investors make decisions to buy stocks and real estate when the economy is good. It’s that fun that inflates the stock market and residential assets.

    Until in the end the bubble burst because the economy was in a downturn, then they would destroy the market by selling all the assets they had. This then triggers a recession.

    4. Economic Shock

    This condition can be many things. Starting from a pile of individual debt, to companies. The more debt you have, the higher the repayment fee will be. In fact, this can get to the point where the debtor is unable to pay off the debt.

    Economic shocks can also occur due to natural disasters , political and social instability, terrorism , war , or in times of pandemics such as those that have occurred since 2020 until now.

    5. High Interest Rates

    High interest rates can also cause prolonged economic problems . A high nominal can indeed protect the value of the currency, but it can also burden the debtor and cause credit faltering. If this problem occurs continuously, it is not surprising that many banks close and collapse.

    6. Loss of Investor Confidence

    In economic development, investment is the key. Therefore, it is necessary to have a conducive and safe climate so that investors are interested and believe in pouring their money.

    If many investors lose confidence and withdraw their investment, then the economy will be weak, production will decrease, unemployment will increase and of course the country will experience an economic recession.

    7. Imports are Bigger than Exports

    When countries bring in more of their basic needs from abroad and are not matched by sales of domestic products to foreign countries, this will trigger a recession.

    It is clear that the expenditure for obtaining imported goods is greater than the income from selling local products to foreign countries. This will of course lead to a deficit in the state budget.

    Impact of the Economic Recession

    The economic recession will certainly have a big impact on all. At least this impact will be grouped into 3 groups, namely:

    1. Government

    An economic recession can cause a reduction in the state budget that comes from taxes and non-taxes. This is because people’s income and property prices have decreased.

    Not only that, the recession also causes high unemployment rates. Of course, the government must find ways to open up the widest possible employment opportunities for those in need.

    Not surprisingly, this condition can make countries apply for loans to foreign banks and increase the amount of state debt.

    2. Company

    Recession is one aspect that can lead to business bankruptcy . When the company is not strong enough to face losses and economic problems that hit the market, the solution is to go out of business.

    Of course, that’s not a good way out. Because this causes massive layoffs that lead to low economic activity in the community due to poverty.

    3. Workers

    They are the worst affected in the event of a recession. Workers will be threatened with losing their jobs and having difficulty meeting their daily needs. If their income is nil due to layoffs, then the impact will no longer only be on the economy, but will also spread to social problems and so on.

    Example of an Economic Recession

    The world has changed dramatically in the three months since our last update of the World Economic Outlook in January. A rare disaster, a coronavirus pandemic, has resulted in a tragically large number of human lives being lost. As countries implement necessary quarantines and social distancing practices to contain the pandemic, the world has been put in a Great Lockdown. The magnitude and speed of collapse in activity that has followed is unlike anything experienced in our lifetimes.

    source : imf.org

    Difference Between Recession and Economic Depression

    In addition to the economic recession that threatens the survival of the community, there is also the term economic depression. Here’s the difference:

    • Scale. The occurrence of a recession is usually limited to one country, while an economic depression affects the global economy. An economic depression is a much more severe condition of the economy and its effects are worse than a recession.
    • GDP levels. The level that marks the onset of a recession is that its GDP fell in the range of minus 0.3-5.1%. While depressed, its GDP was at minus 14.7%-38.1%.

    Period of time. A country is considered to be in a recession when its economy has deteriorated for 6 to 18 months in a row. In depression, the effects are much more severe and long lasting. The slump in economic conditions in the economic depression can last for more than 18 months.

  • Introduction to Microeconomics: Definition, Theory, Objectives and Scope

    Introduction to Microeconomics: Definition, Theory, Objectives and Scope

    Are You looking for references on microeconomic theory? That’s right, sometimes there are still many people who can’t tell the difference between micro and macro economics. Even though the study of this theory will often be encountered by us when studying economics. In order to get to know and understand more about the study of the theory, the following is a specific explanation of microeconomic theory, starting from the definition, objectives, scope, problems, and practical examples:

    Understanding Microeconomics

    The definition of microeconomics is a special study of economics to study the behavior of consumers and a company and determine market prices and quantities of inputs, goods and services to be traded. Microeconomics is also referred to as microeconomics which can directly affect decision making about supply and demand for goods or services.

    So, the definition of microeconomics is to have the main goal for companies, namely to analyze the market and how the mechanism in forming the relative prices of products or services. In microeconomic theory, the study of supply and demand curves helps to understand the relationship between changes in wages, the right pattern of work, and to understand what cost variables are in the production of certain goods and services.

    Aspects in analyzing microeconomics include: cost and benefit analysis, theory of demand and supply, elasticity, market models, industry, production theory, and price theory. This aspect of analysis can play a role in helping to analyze market failures and theoretically describe conditions in a perfectly competitive market. To understand the broader understanding of microeconomics, the following is the definition of microeconomics based on the opinion of experts:

    1. According to Mary A Marchant and William M Snell

    Microeconomics is the study of individuals, households and firms in making decisions within a larger economic process.

    2. According to David A. Moss

    Microeconomics is a step in analyzing a decision made by an individual or group, starting from the factors to the form of consideration of the costs and benefits.

    3. According to Adam Smith

    Microeconomics is a rational consideration in making decisions made by business people.

    4. According to NG Mankiw 

    Microeconomics is a scientific study that discusses the role of individual economic actors in making decisions and how they interact in the market.

    5. According to David Ricardo

    Microeconomics is a condition where economic actors already have information about the ins and outs of a particular market. So, microeconomics is a determining factor in the global economic market.

    6. According to Marshal and Pigou

    Microeconomics is a form of high level of mobility in the market, thus enabling economic actors to directly adapt and adjust to changes in the market.

    Microeconomics is a form of high level of mobility in the market

    Microeconomic Goals

    In practice, microeconomics has the following main objectives in economics:

    1. Can perform analysis on the mechanism that forms the relative price of the product, both in the form of goods and services and its application from limited sources among the many alternative uses.
    2. Can perform market failure analysis, which is when the market fails to produce efficient results and explains various theoretical and strategic situations required by a market with a perfect form of competition.

    Scope of Microeconomics

    The scope of microeconomic theory is producers and consumers, but in the world of economics, producers and consumers are individual forms in every condition of society, organizations, companies, and households. The following is a more detailed or specific scope of economic theory in a broader economic study:

    1. Interaction in the Goods Market

    In this economic concept, there must be interaction in the goods market. The market is a place where supply and demand transactions meet. This place then becomes a meeting place between sellers and buyers to make real buying and selling transactions.

    2. Seller and Consumer Behavior

    Sellers and consumers have a rational nature, where sellers want maximum profit, while consumers or buyers need optimal satisfaction, both in terms of quality and price of goods and services. The behavior of these sellers and buyers can be analyzed using assumptions and it is necessary to pay attention to their economic activities which are carried out rationally and openly.

    3. Market Interaction of Production Factors 

    The scope of microeconomics also involves the interaction of the market with the factors of production, where the seller has the product to meet the needs of the factors of production which he does by becoming a buyer as well. While the buyer or consumer then needs money to be able to continue to meet their needs and satisfaction.

    4. Value Use Theory

    Use value in microeconomic theory is a way to study how an item can produce benefits or satisfaction for buyers or consumers who use these goods or services.

    5. Market Structure Theory

    The theory of market structure is to explain the form of market classification based on a number of existing companies, characteristics, and types of products. This theory also discusses the aspect of convenience for companies or producers to enter and exit a market. A market structure that is generally non-competitive will occur if the company does not have the power and ability to influence the amount of certain goods and their prices.

    Meanwhile, if the company has the power or ability to influence the number of certain goods and their prices, then the market structure becomes a competitive market structure.

    6. Price Elasticity

    Price elasticity is a useful form of analysis for studying how the prices of certain goods or services are formed in a market. The formation of this price is influenced by the large number of requests in the market.

    7. Industry 

    In microeconomic theory, it also discusses how the flow of product turnover, both goods and services, can be formed in the market. This theory will then analyze the goods produced, producers, consumers, and distribution in terms that allow or rational in making the right economic decisions.

    8. Input Market

    The scope of the input market studies how producers obtain their production materials at the lowest possible cost and can produce goods or services that have a higher selling value. This means that in this scope it discusses the product process itself from the beginning which does not yet have a high value after it reaches the hands of consumers or buyers.

    Microeconomic Theory

    We recomend you also read : Understanding Accounting and Its Importance in Business.

    Microeconomic Theory

    In the study of microeconomics, this theory divides three analyzes that can be carried out as follows:

    1. Price Theory

    In price theory, it is usually carried out in the process of price formation, the factors that can affect changes in supply and demand in the market. In addition, it also examines the relationship between the price of demand and supply, as well as the shape of the market and the concept of elasticity of demand and supply.

    Price theory also discusses the balance that occurs between sellers and buyers, where both will carry out a bargaining process until an agreement is reached at a certain price.

    2. Production Theory

    Production theory is used as a basis for analyzing the level and cost required for a particular production process.

    This analysis is then carried out on all matters relating to the cost of producing goods and services on the market. The combination of factors that occur in microeconomics needs to be determined by producers in order to get maximum profit.

    3. Distribution Theory

    Distribution theory aims to analyze labor wages, profits, and the amount of interest that must be paid to the owners of capital. This theory becomes the activity of distributing products from producers to final consumers through distribution channels.

    Generally, this theory in microeconomics is used as a consideration for ordering time, product durability, and the distance between producers and consumers. Distribution is not only a matter of distributing a product from producers to consumers, but also a form of business promotion and packaging of these products or services.

    4. Consumption Theory 

    This theory refers to the religious behavior of consumers in the context of meeting a need. Consumption theory will also discuss the occurrence of the market demand curve which is assessed as a derivative of the individual customer demand curve. In addition, it also discusses the occurrence of a decrease in the curve that can use this theoretical approach.

    Microeconomic Problems

    In microeconomics, economic actors can certainly face problems or obstacles that are economic in nature or related to the economy. The application of microeconomic theory is what can make the best choice from various alternative choices according to the needs and conditions of the problem at hand. This can happen because there are activities to produce or consume goods and services.

    In this situation, economic actors need to make decisions that aim to make the available resources more efficient. In addition, this choice can also create better welfare for economic actors and even more broadly. The following economic problems can occur in the scheme of microeconomic theory:

    1. Scarcity Problem

    Scarcity Problem

    The problem of scarcity can occur because of an imbalance between community needs and available production factors. Factors of production that can be used to produce the needs of these goods are limited. That is why people find it difficult to get all the things they want. Finally, the community makes a decision to choose other options in order to still be able to meet their needs.

    2. Community Needs

    In microeconomics there must be problems related to the needs of the community because basically the needs of the community are a form of need and desire to consume goods or services. Generally is as goods or services imported from abroad. Nevertheless, it remains the most widely produced domestically. In microeconomic theory, it shows that people’s desire to obtain goods and services can be divided into two forms, as follows:

    • The desire followed by the ability to buy or is called effective demand
    • Desire that is not followed by the ability to buy

    Microeconomic Example

    In practice, microeconomics can be seen when producers and consumers carry out rational economic activities. The following is an example of the occurrence of micro-economy that applies in Indonesia:

    1. Request

    Demand is one form of microeconomic example that shows the amount of goods and services that are in demand and the ability to buy for consumers at a certain price level and time. When there is demand when the price of goods or services is higher, the quantity demanded for goods or services will decrease. Conversely, if the price of goods or services decreases, the higher the buyer’s demand for goods or services.

    2. Offer

    In addition to demand, there is supply which is also an example of microeconomics which shows the amount of goods or services available for sale or offered to consumers at a certain price level and period. The actors who make offers are producers, where the higher the price, the higher the number of bids. Conversely, if the price decreases, the number of goods or Java offered will also decrease.

    Microeconomic Example

    3. Consumer and producer behavior

    The behavior of consumers and producers is also an example in microeconomics which shows the activities and processes carried out by economic actors in selecting, searching, buying, evaluating, and using goods or services for certain needs.

    4. Price

    Price is certainly a part of microeconomics because it has a relationship with the value of goods. Price is the element of the marketing mix that represents a profit. The price function in microeconomic theory is a measuring tool that shows the value of a good or service. So when the price is determined it is influenced by economic conditions, demand and supply curves, and also costs that can continue to change.

    5. Inner Cost

    Internal costs are sacrifices that companies or individuals use to get more benefits from the various economic activities they carry out. These costs can affect price changes, for example, high raw material costs cause an increase in the price of the product itself. This cost is also commonly referred to as  cost  because it is issued for  output  according to the target to be achieved.

    6. Market

    The market is a place where buying and selling activities occur, namely bringing them together to obtain a sale and purchase agreement. The market is then not only defined as a physical form, but can take a broader form, such as a marketplace or online buying and selling activities using the internet.

    If we talk about microeconomic theory, we cannot be separated from macroeconomics. Both have a fundamental difference, namely the scope that covers them. If microeconomics has an attempt to find factors that contribute to decisions and their possible impact on the general market, then macroeconomics discusses a holistic study of the structure, performance, behavior, and processes of economic policy making at the national level.

    Well, that’s an explanation of the  introduction to microeconomics , starting from the definition, objectives, scope, problems, and examples. have you been able to understand it? Most people may still have difficulty distinguishing between micro and macroeconomics. Both economic theories discuss the same economic objects, such as producers, consumers, prices, impacts, and so on.

  • Understanding Accounting and Its Importance in Business

    Understanding Accounting and Its Importance in Business

    For some people, the science of accounting is related to the calculation system, but the fact is that accounting is a process that is not simple. What is accounting? What is the definition and understanding of accounting according to some experts? Sinaumedia will review it here.

    This knowledge is quite widely used in daily applications, especially related to business activities.

    By using this knowledge, entrepreneurs can monitor whether the business they are running is running well or not.

    Well, by reading this article, you will have a better understanding of the following topics and be able to answer questions such as:

    • an information system that provides reports to interested parties regarding the economic activities and condition of the company. What is the definition of this sentence?
    • Accounting is the process of identifying, measuring and reporting economic information to enable clear and unambiguous judgments and decisions for those who use the information.

    The definition or definition of accounting is as follows

    Broadly speaking, the notion or definition of accounting is a process that begins with recording, classifying, processing, presenting data, and recording transactions related to finance.

    Thus, the information can be used by someone who is an expert in the field and can be used as material for making a decision.

    A practitioner who is an expert in this field is called an accountant.

    The definition of accounting has also been referred to as the language of business to measure the results of economic activities in organizations and convey information to various parties, including management, investors, creditors, and regulators.

    Various theories themselves have been put forward regarding the notion of accounting.

    Various theories develop along with the increasing number of people who want to learn it, considering the science of accounting systems provides various conveniences in carrying out activities.

    Although accounting software is very helpful, but as an entrepreneur, accounting knowledge is very important to understand.

    The definition of accounting according to experts is as follows

    Various definitions and understanding of accounting represent different things. This difference occurs because the experts who put forward explore different fields of science.

    Here are some definitions of accounting according to some experts:

    • Warren

    What is accounting? In general, accounting or accounting is an information system that produces reports to interested parties regarding the economic activities and conditions of the company.

    • Paul Grady

    What is accounting? According to Paul Grady, accounting is a body of knowledge and organizational functions that are systematic, authentic and original in recording, classifying, processing, summarizing, analyzing, interpreting all transactions and financial events and characteristics that occur in the operations of accounting entities with the aim of providing information that This means that management is needed as a report and accountability for the trust it receives.

    • Zophar Lumbantoruan

    Accounting is a tool used as a business language where the information conveyed can only be understood if the accounting mechanism is understood.

    Stating that accounting is a service activity whose function is to provide quantitative information which is then used for economic decision making.

    The Process in Accounting Is As Follows

    As it has been mentioned above that accounting is a process related to finance whatever happens in a business or organization.

    The process consists of recording, summarizing, analyzing, and reporting data.

    If you want to know more, here is an explanation of the four processes:

    1. Take notes

    The first and most important process in the accounting process is the recording of transactions that occur within the company.

    This process is often referred to as bookkeeping, which is recognizing transactions and entering them into records.

    Bookkeeping is concerned with recording only.

    In accounting, bookkeeping is usually done for the sake of detailed recording and becomes a report to present data as a final financial report.

    2. Summarizing

    Generally, raw data is the result of recording transactions and is considered not very important.

    This raw data has no influence in the decision -making process.

    However, this is where the role of the accountant is to use the raw data, divide it into categories, and translate it.

    So, the usual process is to record transactions, then summarize them.

    3. Report

    Every business that happens in the company is the responsibility of management.

    Every business owner should know the various operations or activities that take place in the company and how the company uses the money.

    In this case, the owner of the company will receive a financial report for the company which is usually sent monthly.

    Meanwhile, there is also an annual report that will summarize all the performance within the company.

    sample accounting report
    sample accounting report

    4. Analyze

    Finally, analyzing is an important final process in accounting.

    After recording and summarizing, of course you have to draw conclusions.

    This is where the important role of management to examine the positive and negative points.

    In analyzing all of this, accounting introduces the concept of comparison.

    Where you can compare sales, profit and loss , equity, and more to determine and analyze work and make decisions.

    Of the many understandings of accounting science, all of them have almost the same goal where each goal is to provide accurate reports relating to company financial problems.

    The definition of accounting will help you in presenting a detailed report on the company’s expenses and income so that you can find out the profits and losses.

    In addition, the use of accounting knowledge will also help companies to identify employees who commit fraud.

    Can you now answer the question what is accounting?

    Again, accounting is the process of recording and processing data on every transaction that occurs in a business.

     

  • How to Calculate Working Capital?

    How to Calculate Working Capital?

    Working capital is the company’s ability to pay current liabilities with current assets . Working capital is an important measure of financial health because creditors can measure a company’s ability to pay off its debts within a year.

    Working capital represents the difference between a company’s current assets and current liabilities. The challenge is to determine the right category based on the large number of assets and liabilities on the company’s balance sheet and outline the company’s overall health in meeting its short-term commitments.

    Working Capital Components

    Current Asset

    This is what companies have today – both tangible and intangible – that they can easily turn into cash within a year or a business cycle, whichever is less. The more obvious categories include demand deposits and savings; highly liquid securities such as stocks, bonds, mutual funds and ETFs; money market account; cash and cash equivalents, accounts receivable , inventory and other short-term prepaid expenses. Other examples include current assets from discontinued operations and interest payable. Current assets do not include long-term or illiquid investments such as certain hedge funds, real estate, or collections.

    Current Liabilities

    In the same way, current liabilities include all debts and expenses that the company expects to pay in one year or one business cycle, whichever is less.

    This usually includes all the normal costs of running the business such as rent, utilities, materials and supplies; payment of interest or principal of debt; accounts payable ; accrued obligations; and accrued income tax. Other current liabilities include dividend payable , leases with maturities in one year, and long-term debts that are due.

    How to Calculate Working Capital

    Working capital is calculated using the current ratio, namely current assets divided by current liabilities. A ratio above 1 means current assets exceed liabilities, and generally, the higher the ratio, the better.

    Example of Working Capital: Taruna Arka
    For the fiscal year ended December 31, 2017, PT Taruna Arka has current assets of IDR 36.54 billion. Includes cash and cash equivalents , short-term investments , marketable securities, accounts receivable, inventories, prepaid expenses, and assets held for sale.

    Taruna Arka has current liabilities for the fiscal year ending December 2017 amounting to IDR 27.19 billion. Current liabilities include trade payables, accrued expenses, loans and notes payable, current long-term debt maturities, accrued income taxes, and liabilities held for sale.

    According to the information above, the company’s current ratio is 1.34:

    IDR 36.54 billion ÷ IDR 27.19 billion = 1.34.

    Has Working Capital Changed?

    While working capital funds do not expire, working capital figures do change over time. That’s because the company’s current liabilities and current assets are based on a rolling 12 month period.

    The exact working capital figure can change every day, depending on the nature of the company’s debt. What was once a long-term liability, such as a 10-year loan, becomes a current liability in year nine when the payment deadline is less than one year away. Likewise, what was once a long-term asset, such as real estate or equipment, suddenly becomes an asset as buyers line up.

    Working capital as a current asset cannot be depreciated (depreciated) like a long-term asset. Certain working capital, such as inventory and accounts receivable, can lose value or even be written off occasionally, but how it is recorded does not follow depreciation rules.

    Working capital as current assets can only be charged immediately as a one-time expense to match the income they helped generate in the period.

    Although it cannot lose value due to depreciation over time, working capital can be devalued when some assets have to be marked (Mark-to-Market) to the market.

    It occurs when the asset price is below its original cost, and the others cannot be saved. Two common examples involve inventory and accounts receivable.

    Outdated supplies can be a real problem in operations. When that occurs, the market for inventory has a lower price than the original purchase value recorded in the accounting books. To reflect current market conditions and use the lower cost and market method, companies mark their inventory down, resulting in a loss of working capital value.

    Some receivables may become uncollectible at some point and have to be written off entirely, which is another loss of value in working capital. Because losses in current assets reduce working capital below the desired level, funds or long-term assets may be required to fill the shortfall in current assets, an expensive way to finance additional working capital.

    Means Working Capital

    A healthy business will have sufficient capacity to pay off current liabilities with current assets. A ratio higher than above 1 means the company’s assets can be converted into cash at a faster rate. The higher the ratio, the more likely the company will be able to pay off short-term obligations and debts.

    The higher ratio also means the company can easily fund its day-to-day operations. The more working capital a company has means that it may not need to take on debt to finance its business growth.

    A company with a ratio less than 1 is considered risky by investors and creditors because it indicates that the company may not be able to cover its debts if necessary. A current ratio of less than 1 is known as negative working capital.

    We can see in the graph below that the working capital of Pt. Arka cadets, as indicated by the current ratio, have been increasing steadily over the past few years.

    Working Capital Pt. Arka cadets

    The tighter ratio is the quick ratio, which measures the proportion of short-term liquidity to current liabilities. The difference between this and the current ratio is in the numerator, where the asset side includes cash, securities, and accounts receivable. The Liquid Ratio (Quick Ratio) does not include inventory, which can be more difficult to turn into cash in the short term.

    The value of working capital should be assessed periodically from time to time to ensure that devaluation does not occur, because sustainable operations require sufficient working capital.

  • What is Gross Profit Margin (GPM)?

    What is Gross Profit Margin (GPM)?

    Gross Profit Margin is a metric that analysts use to assess a company’s financial health by calculating the amount of money left over from product sales after reducing the cost of goods sold (COGS) .

    Sometimes gross profit margin is referred to as gross margin ratio, gross profit margin is often expressed as a percentage of sales.

    Key Explanation

    • Gross Proft Margin (GPN) is an analytical metric expressed as a company’s net sales less cost of goods sold (COGS).
    • Gross Proft Margin (GPN) is often shown as gross profit as a percentage of net sales.
    • Gross Proft Margin (GPN) shows the amount of profit made before deducting sales, general and administrative expenses, which is the company’s net profit margin.

    Formula for Gross Profit Margin (GPM)

    GPM = GP / Sales Revenue

    Remarks:

    • GP = Gross Profit
    • GPM = Gross Profit Margin

    How to Calculate Gross Profit Margin (GPM)

    The percentage of a company’s gross profit margin or gross profit margin (MLK) is calculated by dividing gross profit by sales revenue. The figure for the distribution in the form of a presentation is called the gross profit margin.

    Problems example:

    Company A’s gross profit is USD 200,000 and the sales revenue it receives is USD 350,000. So to get the results of the Gross Profit Margin, the calculation is as follows.

    • Gross profit margin = USD 200,000 / USD 350,000.
    • Gross profit margin = 57%.

    What can Gross Profit Margin tell you?

    If a company’s gross profit margin fluctuates wildly, this may signal poor management practices and / or lower product prices.

    On the other hand, such fluctuations can be justified in cases where a company makes massive operational changes to its business model, where cases of temporary volatility should be no cause for alarm.

    For example, if a company decides to automate certain supply chain functions, the initial investment may be high, but the cost of goods eventually decreases due to the lower labor costs resulting from the introduction of automation.

    Product price adjustments can also affect gross margins. If a company sells its products at a premium, all other things being equal, it has a higher gross margin.

    But this can be a tricky balancing act because if the company charges too high, fewer customers buy the product, and the company can suffer losses as a result.

    Examples of Using Gross Profit Margin

    Analysts use gross profit margins to compare a company’s business model with its competitors. For example, let’s assume that Company ABC and Company XYZ both produce electronic products with identical characteristics and similar levels of quality.

    If ABC Company finds a way to manufacture its product at a cost of 1/5, it will provide a higher gross margin due to a reduced cost of goods sold, giving ABC a competitive advantage in the market.

    But then, in an attempt to make up for the loss in gross margins, XYZ fought back by doubling the price of its product, as a method of increasing revenue.

    Unfortunately, this strategy can backfire if customers are deterred by a higher price tag, in which case, XYZ loses gross margins and market share.

  • From Mudharabah to Ijarah, Get to Know the Principles of Islamic Banking

    From Mudharabah to Ijarah, Get to Know the Principles of Islamic Banking

    Islamic banks are banks that carry out their activities based on Islamic law (Islamic principles). This bank is also called an interest-free bank. Why not, in raising funds this bank does not provide interest in return and in loans are not subject to interest.

    In carrying out its activities, this bank is based on Islamic religious principles which prohibit levies and loans with interest or what is called usury. This system also prohibits investing in businesses that are categorized as haram. For example, businesses related to the production of haram food or drinks, non-Islamic media businesses and so on.

    So, what are the principles of the Islamic banking? In the following we will describe them one by one, from the so-called principles of mudaraba, murabahah, to ijarah.

    1. Mudaraba

    The first principle of Islamic banking is mudaraba. This is an agreement between the provider of capital and the customer. Each profit earned will be shared according to a certain ratio agreed upon. The risk of loss is fully borne by the bank, as long as there is no evidence of customer fraud or actions that are not in accordance with the trust of the bank.

    2. The Murabaha Principle

    Murabahah is the distribution of funds in the form of buying and selling. Banks buy goods needed by service users, then sell them back to service users at prices that are increased according to the profit determined by the bank. Service users can pay the goods in installments.

    3. The principle of Musharakah

    Musharakah is financing based on the principle of equity participation. Banks and customers become business partners. Each of them contributes capital and agrees on the ratio of profit in advance for a certain time.

    4. The Wadiah Principle

    Wadiah is a fund deposit service (savings) where the depositor can take the funds at any time.

    5. Ijarah Principles

    Ijarah principle, namely the financing of capital goods based on the principle of pure lease without choice, or with the option of transferring ownership of the goods leased from the bank by another party (ijarah wa iqtina).

    As for some examples of Islamic banks that we can currently find are BRI syariah, Mandiri syariah, BNI syariah and others.

  • Kakeibo, Japanese Tricks to Manage Finances

    Kakeibo, Japanese Tricks to Manage Finances

    Kakeibo is a Japanese concept art of financial management that teaches us how to save more by reducing the amount of spending each month.

    Why learn from Japan’s Kakeibo?

    Hundreds of years ago, Japan was famous for its agricultural production in the traditional way. Japan has changed now, even famous for its very advanced technological developments.

    Japan is the country with the highest cost of living in the world. This phenomenon occurs because the level of competition between residents is hard. That is why Japanese residents are required to manage finances as perfectly as possible. This is where Kakeibo comes into play

    Instead of buying new trending clothes every month, they are better off squandering the extra cash and collecting it to buy more than just clothes.

    Understanding Kakeibo: Origins, Recording Plans, Targeting Savings, and Character Discipline

    Kakeibo is basically a concept of managing finances where we are required to record all our income, our expenses in detail. Kakeibo does not use applications or technology in its financial records, but instead writes with a notebook.

    The main goal of this financial record is to achieve the target of how much money is saved at the end of the month. The average person who implements the Kakeibo financial system is able to accommodate up to 35% more money

    Fumiko Chiba, a Japanese writer who wrote the book “Kakeibo: The Japanese Art of Budgeting Saving Money ” . Fumiko stated that the challenge in Kakeibo is to manage hard, be more disciplined to reduce the amount of non-essential expenses, then focus on habits and decisions.

    Kakeibo became famous in 1904. It was a Japanese journalist, Hani Motoko, who had popularized Fumiko Chiba’s book Kakeibo and attracted the attention of many people.

    Chiba also said that Kakeibo was made to make things easier for women. Especially housewives. Kakeibo gives freedom to women, meaning that women can be trusted to make wise decisions in managing finances even in the traditional way.

    The basic understanding of Kakeibo is to get rid of the thought of how to buy the things you want to buy. Replace these thoughts with more attention to other things that are more important.

     

    4 Basic Questions In Kakeibo

    Before starting to apply Kakeibo, there are 4 questions that must be answered first. Everything must be answered in order, not randomly or swapped

    1. How much money do you have? / How much do we earn each month?
    2. How much would you save? / How much target money do you want to save?
    3. How much do you spend? / How much do you spend each month?
    4. How can you make things better? / How do you make things better?

    Starting from the first question to the last is the order of the process of managing Kakeibo’s finances. The last question is the stage where you have to do an evaluation at the end of every month, if something goes wrong.

    For example, your initial target is that you can save 200 usd per month, but after calculating you only get 150 usd. Then you should start evaluating your financial records .

    Maybe you still spend too much money to hangout  with friends or other reasons. So in the next month, you try not to do the same thing in order to reach the savings target.

     

    4 Kakeibo Budget Allocation Posts

    1. Survival / Basic Necessities

    Which includes basic needs: Food, clothing, transportation, internet quota, vitamins & medicines, masks, toiletries, debt.

    1. Optional / Secondary Need

    Which includes secondary needs: Eat at a restaurant, snacks, buy clothes that are trending , home decor knick-knacks, new gadgets , hobby supplies, and vacations.

    1. Culture / Educational needs and add insight

    Which includes educational needs: Books, courses, visits to museums, magazines/newspapers.

    1. Extra / Additional production

    Which includes additional expenses: Wedding or birthday gifts, vehicle service, doctor fees, assistance to the needy (Alms)

     

    Recording Income, Expenditures, and Savings Targets Every Month

    Applying Kakeibo requires two notebooks, namely a large notebook and a small notebook.

    A large notebook is useful for recording all income, expenses and savings in detail.

    While a small notebook is useful to carry wherever you go so that when you are shopping, you immediately record your expenses right away so you don’t forget and are accurate.

    Large notebooks should reflect the following:

    1. Monthly Income Plan

    You can make notes in the form of bullets or tables. You must keep a record of your income.

    Starting from basic salary, bonus salary, debt repayment, sales, and so on, everything is recorded at once along with the date on which you received the income.

    1. Set aside savings

    Savings records are divided into two, namely monthly savings and daily savings. Monthly savings are recorded in the form of targets. Create a record table containing date, description, monthly and daily.

    For example, a monthly savings target of 500 thousand, after that we make it in another column of this month’s calendar from the 1st – 31st. Every time we save money in a day, then cross out the stairs on that day.

    The purpose of this daily savings is so that our savings will increase. Prepare an envelope to enter daily savings. While monthly savings are taken at the end of the month, which is the rest of our money.

    1. Pay debt

    Expenditures to pay debts must be set aside from the beginning of the month, so they are not mixed with other expense records.

    1. Allocate 4 Expenditure Budget Items

    Record all expense categories in separate tables. For example, in the table of Basic Needs (survival), sub-categories are also included. For example, eating, how much food was spent on that day and continued to be recorded until the end of the month.

    Other categories of needs are also recorded in their respective tables. That’s what a little notebook is for. Then in the big notebook, there is one big table that summarizes all the total records of each need.

    1. Prepare 5 Envelopes

    The envelopes are divided into savings target envelopes, basic needs envelopes, secondary needs envelopes, educational needs , and additional needs. Each envelope contains approximately how much money is needed to meet these needs.

     

    End of Month Evaluation and Consistency

    One of the most difficult to implement is the application of a disciplined and consistent character. Kakeibo requires us to be disciplined in managing our finances. Demanded to be wiser in spending money.

    All records of both income, expenditure and savings are intended so that we know accurately the amount of our money. Usually people will not realize that they have bought a lot of clothes, then after that the money just seems to disappear for some reason.

    With records, we know where the money has gone, so when buying expensive things that are not needed, feelings of regret grow.

    The evaluation process at the end of the month is a warning to ourselves that we need to improve ourselves. The process of forming this character will definitely not be easy, and it will take a long time for us to keep ourselves consistent and disciplined.

    But believe me everything will feel worth it. In the end the savings will be useful for us in the future.

    Thus the article about the hormone of happiness from  Tumbooh.com , please share it with your friends if this article is useful. thanks.

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