Much emphasis is placed on using quantitative methods and mathematical techniques in business and economics. Such approaches, it is considered, give additional credence to business decisions and help managers and executives justify their actions. However, objective information must be tempered with intuition and experience in order for companies to realize their full potential, and excellent managers are separate from their average peers by the use of their experience when considering quantitative data. This is particularly true when trying to determine what products to manufacture, or what price to charge, but is also true when making more mundane decisions in business. This research considers the use of quantitative methods and mathematics in business and explores how intuition and experience come into play in the decision making process.
Anyone selling a product or providing a service uses basic arithmetic to determine how much money they take in and how much money they pay out. When the expenses are less than the revenues, they make a profit. This simple accounting principle becomes more complex as the items associated with the various components increases in complexity. Revenues can be based on cash received, or they may be placed on accounts receivable. Expenses and cost of goods sold similar can be paid for directly, or registered as accounts payable. Inventory valuation comes into play, and methods of determining inventory (LIFO vs. FIFO) can have long-term effects on a business. Eventually, financial statements are prepared in order to provide a way of determining where the company stands and how the company is doing relative to other organizations.
There are two primary financial statements: the income statement and the balance sheet. The income statement identifies the companies revenues, then subtracts the expenses associated with producing that revenue. When the costs are less than the revenues, the comp...