Question

The article discusses three core financial implications of the business model. What are the three core financial implications, and explain each in a sentence or two. (6 points)

Answer 1

Answer:

Three core financial implications of the business model are:

1) Profitability of the business model:  Profit is the difference between the output value (Sales or Service Revenue) and the input value (Cost of goods sold and expenses).

2) Required Assets for the business model:  Each business model dictates the investments in assets that will be required to generate returns.  Some businesses require large assets investments while others are less capital-intensive and as a result require less capital, but perhaps more labor.  An example is an IT industry that provides software services.  The capital outlay is not usually large unlike in the case of a computer hardware manufacturing entity.

3) The growth speed is another important factor that determines the outcome of each business model.  Some business models are based in high-growth industries.  The risk for such industries and business models is that the rate of extinction is also very high.  There will always be a higher constant need for renewal in high-growth industry than in a low-growth and more sustainable industry.  Growth factor is an important ingredient in determining the business model to adopt.

Explanation:

Business models are different, from one industry to another, and from one firm to another.  As the company's core strategy for achieving profitability, business models are based on two core levers of pricing and costs.   These dictate if a business model will succeed or not.