The Power of Profit, 2010
Business and Economic Analyses, Forecasting, and Stock Valuation

How can business leaders make better production and capital investment decisions? How can Wall Street analysts improve their predictions of future stock market values? How can government improve macroeconomic forecasts and policies? In ThePower of Profit, Anari and Kolari demonstrate how profit measures can be applied as the basis for these and many other applications of economic, policy, financial, and business analysis. The underlying theme of the book is that profitability is the driving force in free market economies. Firms invest in capital, produce goods and services, and generate sales in an effort to reap profits. Firms that are unprofitable exit the marketplace and are replaced by profitable firms. Despite the crucial importance of profits, however, there is no formal model that directly relates profits to capital formation and output. Previous studies over the past 100 years on profit and the economy are mainly descriptive in nature, without any well-specified model grounded in microeconomic theory. Filling this gap, the authors present a profit system model of the firm grounded in basic accounting relationships in addition to the well-known Cobb-Douglas production function, which can be applied to individual firms, industries, and the business sector as a whole.

Through rigorous data analysis, the authors show how the profit system modelcan be applied to:

• modeling the U.S. business sector and national economy
• forecasting output, capital stock, total profit, profit rates, and profit margins
• examining the relationships among profitability, economic growth, and the business cycle
• simulating the effects of potential monetary policy changes on the business sector and national economy
• valuing the Standard & Poor?s stock market index as well as individual firms.

The result is a model that integrates microeconomic and macroeconomic factors and that can be widely applied in business and economic decisions, policymaking, research, and teaching.

Dr. Ali Anari obtained his PhD in Industrial Economics and Business Studies at the University of Birmingham, United Kingdom in 1978. He has more than 30 years research experience in developing computer-based economic models for economic analysis and forecasting in the areas of energy economics, macroeconomics, real estate economics, and regional economics. In his professional career Dr. Anari has been a research economist in the areas of national and regional economic modeling at the Center for Business and Economic Analysis in the Mays Business School at Texas A&M University, Visiting Scholar in the Anderson School of Management of the University of California, Los Angeles, research economist at the Imperial College of Science and Technology, London, research fellow at the University of Birmingham, U.K., and economic analyst at the economics and statistics department of National Iranian Oil Company. He has presented papers on economic modeling at conferences around the world and published book chapters and articles in such scholarly publications as the Journal of Money, Credit, and Banking, Journal of Applied Economics, Journal of Financial Research, Journal of Real Estate Economics, Journal of Economics and Business, Journal of Energy Policy, and Journal of Emerging Markets.  Current research interests include developing economic models for early warning of real estate bubbles, profitability and economic growth, and regional profitability analysis.        

Professor James W. Kolari obtained his PhD in Finance at Arizona State University in 1980 and thereafter has taught financial markets and institutions at Texas A&M University in the Finance Department.  In 1994 he was awarded the JP Morgan Chase Professorship in Finance in the Mays Business School.  Dr. Kolari has more than 30 years research experience in the areas of computer-based modeling of financial markets (i

The first to provide a comprehensive, rigorous, and applied model of profit as an economic driver

Both analytical and predictive; can be applied to interpret history and to forecast

Principles can be applied to a wide variety of topics, including stock valuation, industry performance, business cycles, strategic management, and effects of monetary policies

Authors will supplement the book with on-line tools, including data sets, forecasts, interactive materials, and additional resources

Cross-over book, with quantitative and methodological rigor that will appeal to researchers and scholars and practical application that will appeal to business economists, business leaders, bankers, and investors

Authors have contacts in the business and policymaking communities

Includes supplementary material: sn.pub/extras