Articles , Page 8
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...
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
EAT / PAT
EAT (PAT) is the total profit/loss after tax from continuing operations, OR more often the total profit/loss after tax (i.e. including the profit/loss from discontinued operations). It is therefore EBT with income tax or possibly also profit/loss from discontinued operations. Continuing or
EAC
EAC's is total profit/loss after tax, after allocation to statutory reserve and dividend payments to the owners of preferred shares. (18) EAC = Earnings Available for Common stockholders
Reconciliation of Operating income, EBITDA, EBIT (PBIT), EBT (PBT), EAT (PAT), Net income and EAC to IFRS
At the outset, it is necessary to mention that the below stated reconciliation is neither official nor binding and some terms are in fact not fully comparable (e.g. Operating income and EBIT/EBITDA). Although the profit forms mentioned below are very favourite, they mostly
Flexible budget
Flexible budget is a budget that changes with the changed production/sales volume or other significant variable. Budgeted sales/revenues and variable costs are therefore flexed with the actual activity level, but fixed costs usually remain unchanged. Flexible budget shows how the financial pla
Top-down budgeting / Imposed budgeting
If this style of budgeting is used, budgets are prepared from top-down direction, i.e. senior management sets the high-level budget (often just basic numbers) without collecting detailed information from operating staff. This total general target is then broken down into detailed budget. The proces
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
Net income
Net income is the total profit/loss (that is, including net profit/loss from discontinued operations), sometimes shown after deduction of profit/loss attributable to non-controlling interest (minority interest).
NOPAT
There are many definitions of NOPAT, therefore the use of this indicator is quite misleading. Common definition is: profit/loss on ordinary activities after taxation without taxed interest expense (i.e. interest expense is adjusted for the effect of tax savings resulting from the interest exp
Fixed budget
Fixed budget is a budget that is not flexed with the changed production/sales volume or other significant variable. The variances between budget and actual are therefore usually great. But in practice, fixed budgets are used more widely than flexible budgets. Fixed budget is useful ma
Static budget
Term static budget refers to budget that is not updated, either in terms of rolling of periods (months) and the changed conditions and circumstances. It is therefore both an opposite of rolling budget or synonym to flexible budget. Static budget is useful mainly when the budget serves as
Bottom-up budgeting / Participative budgeting
If this style of budgeting is used, budgets are prepared from bottom-up, i.e. operating staff collects the detailed information from various departments/functions/other sources. Process usually has a budget coordinator – e.g. controller who aggregates/consolidates these lower-level budgets int