The Golden rule of Economics

In Economics, as in any other scientific discipline, has its own laws and rules. Therefore, the activity of any enterprise can be objectively assessed according to some criteria characterizing its business activity. For this assessment often use the "Golden rule of economy".

Business activity of the company

Stable financial position and high creditworthiness of the enterprise, its stable position in the market is largely driven by its business activity. It is characterized by many of the specific indicators by which to judge qualitative and quantitative criteria for its activities: the sales of products and services, breadth of markets, profits, the amount of net assets. Business activity is characterized by such indicators as the rate of turnover of its funds, good business reputation, the degree of implementation of the plan key performance criteria of its economic activity, the level of utilization of available resources and stable economic growth.

From all these criteria, it is possible to choose just a few to using the well-known economic laws with confidence to judge the business activity of an enterprise. To do this, in the world practice most often used pattern, called the "Golden rule of economy".

What is the "Golden rule of economy"

Any company, regardless of whether it produces products or services that works on the closed cycle: the production of goods and services – sales – profit – expansion of production of products and services. The "Golden rule of economy" allows to assess the economic potential of the enterprise according to three criteria that characterize this cycle. It uses indicators such as:
- TBP -, the growth rate of the balance sheet profit;
- TV – themes revenue growth (sales);
- TK - the rate of growth of total assets consisting of fixed and circulating capital of the enterprise.

The criterion of business activity and efficiency of activity of the enterprise is the ratio: TBP > TV > TC > 100 %, meaning that the economic potential of the enterprise increased in comparison with the previous period.

Evaluating the business activity of the company should note that the period for which the evaluation must be large enough, because part of the profits could not be invested in renewable manufacturing, as, for example, in investments or in the development of new areas of activity that will pay off only after some time. Easiest to verify the accuracy of this pattern, considering the activities of small enterprises, but the existing economic experience has shown that it is unmistakably applicable to any company, regardless of the volume of its momentum.