Articles , Page 7
Disadvantages of accounting profit
Profit as a basic profitability indicator used by companies has the following drawbacks: profit does not equal net inflow of money, costs do not equal expenditures and incomes do not equal receipts profit includes the results of operations that are ad-hoc and will not be repeated in the future various methodologies particularly in the ar...
Liquidity indicators
Liquidity is the entity´s ability to convert its assets into cash for the purpose to settle its obligations, ideally with the lowest possible transaction costs. (14) Indicators of liquidity Liquidity indicators show the extent to which the current assets of the company in various forms cover its short-term obligations. Thus, the num...
Standard costing
Standard costing is a cost accounting measurement basis that predicts unit costs and production quantities based on predetermined standards before the production even begins and as such it is an alternative method to historical cost accounting. It is suitable for production, which is standardized and mass or repetitive. Standard costing serves as...
Net margin / Profit margin / Return on sales
Net margin (Return On Revenue - ROR" or Return On Sales - ROS ") is one of profitability indicators. It shows how much profit is generated from the unit revenue. It is a useful indicator to control costs as the formula for operating ratio can be easily derived from it. Calculation
Budget
Budget is a quantified operational plan for the upcoming accounting period/s. It is financial plan which works as a kind of target. The difference between budget and forecast is: budget shows what the entity aims to achieve (target) forecast shows prediction what is likely to be achieve
Indicators of indebtedness and financial structure
The company may be financed by equity (share capital, share premium, retained earnings) and debts (loans, outstanding liabilities etc.). Indebtedness is the term used to evaluate the extent to which is the entity financed by debts (or generally liabilities). Indicators of indebtedness and
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)
Forecast
Forecast is a quantified prediction of the results that are expected to be achieved by the company in the future. The difference between budget and forecast is: budget shows what the entity aims to achieve (target) forecast shows prediction what is likely to be achieved
Market value added (MVA)
Market value added (MVA) shows how much value the company delivers to its shareholders. Unlike EVA, MVA evaluates the long-term development and the contribution is evaluated over the entire life of the company (not per year). MVA is used to assess the quality of management work. Calcul
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
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