Articles

Profitability index (PI) / Benefit-cost ratio

Profitability index is a method used for investment appraisal that is based on discounted cash-flow methodology. It calculates the present value of cash flows generated by the project per a unit of capital outlay. As such it is helpful in decision-making in situations when the company cannot un

Straight-line growth rate

Straight-line growth rate (also called as relative change, relative variance, relative difference or % change) method calculates growth rate during the considered periods of time based on the formula:  (ending value – beginning value) / beginning value   Example: 2-years grow r

Profit

Profit is generally defined as a difference between income and expenses. It is one of the most common business objectives, a kind of reward for risk and the key measure of success in corporate life. However, there are many different forms of profit which greatly limits its comparability. Above

Tax profit

Tax profit is profit serving as the basis for calculating income tax under the provisions applicable tax law. Tax profit calculation is usually based on the accounting profit that is transformed to tax base.

Forms of accounting profit used in practice

Above in other articles were mentioned forms of profit that are somehow clearly defined. Nevertheless, the economic world is fond of other indicators and some of them can be usually found in the reporting system of nearly any company. They are often not based on any GAAP (not mentioned even in IFRS)

EBITDA / PBITDA

EBITDA (PBITDA) is the total profit/loss without: interest expense (i.e. cost of debt) income tax depreciation and amortization (i.e. write-downs of intangible assets) possibly also profit/loss from discontinued operations (defined in IFRS, other GAAPs may not use this concept) EBITDA usuall

Marginal (variable) costing

Marginal costing is a type of costing method under which only variable costs are included to the value of the product (or job, contract, batch, process, etc.). Therefore, fixed costs are not allocated to the product and are expensed.   It is also known as variable costing method.   Th

Discounting

Discounting is the method that transforms future value (future cash flows) into present value (PV).  Because of the time value of money concept, the present value of equivalent future value is lower because money possessed now is worth more than those earned in the future (it is not certain and

Accounting profit

Accounting profit = income - explicit costs It is a term defined by accounting standards, rules or national legislation used for the purpose of preparing financial statements or possibly tax returns. The difference between economic and accounting profit is described in this article. Accounting pr

Categories of profit in IFRS / IAS

Profit (or loss) income   minus expenses →  excluding other comprehensive income and expenses (i.e. Other comprehensive income) (20)   Other comprehensive income incomes not included in the profit and loss   minus expenses not included in the profit an

Operating income / Operating profit

Operating income is the profit/loss from ordinary operations of the company without: interest expense (i.e. cost of debt) income tax incomes and expenses from non-operational activity (i.e. Non-operating result), which is the result of other than ordinary activities. possibly also profit/loss

EBT / PBT

EBT (PBT) is the total profit/loss without: income tax possibly also profit/loss from discontinued operations (defined in IFRS, other GAAPs may not use this concept)   EBT thus equals indicators: EBIT after including interest expense (i.e. cost of debt) EAT (PAT) after removing the i

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