The present way of calculating profit is inefficient and illogical

An asset is a name with a value on a line of the balance sheet. No more, no less. The existing profit calculation systems make an arithmetical difference between, for instance, non-monetary fixed assets and other assets, which is in flat contradiction to a logical approach. By doing so, profit calculation has been made intricate, and it thereby costs a lot of time, effort and money and what is found at the end doesn’t justify this. With The Profit Formula^® counting and calculating are reduced to an absolute minimum via a direct way to the outcome. A tremendous amount of money can be saved with regard to administration and fringe costs, including for cases of pure nominalism (measuring fiscal profit).

The determination of the 'cost of sale' for each and every sale is not a sinecure at all. For quite soon, people in practice have to deal with thousands, if not tens of thousands of transactions and numerous price changes in between. One has to go through all those transactions doing many counts and calculations. Then apparently it does not matter which one of all the existing profit calculation systems to use - but it should. What a lot of work! How inefficient! Total trading profit minus all the other costs (such as for instance normal depreciation, possible extra depreciation, interest costs and tax costs), at last emerges into a net "profit".

Depreciation is often the outcome of artificial calculations with several arbitrary choices, such as which depreciation method and which life cycle to use. Moreover, there are questions without a clear answer, such as yes or no extra depreciation and if the answer is 'yes' then how much would the depreciation be in the case of a price rise?

Opinions. Opinions. Just opinions. And an awful lot of work. The raison d'être of so many accountants world-wide. To do all that work. To check, double check and triple check. And still there is no proof. Which profit figure is to be believed?

World-wide this traditional way is followed: total sales minus total costs, within which current assets are treated quite different from tangible fixed assets. That is inefficient besides being illogical.

"If income is to be measured in terms of the increase or decrease in the wealth of an enterprise, obviously some definition of that stock of wealth is required. Three basic measures of wealth are evident from the literature:

"(1) Financial capital – the equity stake in an enterprise in money terms;

(2) Real financial capital – the equity stake in an enterprise in real terms (the proprietary concept);

(3) Operating capacity capital – the ability of the enterprise to maintain its ability to provide goods and services (the entity concept) (Tweedie/Whittington, 1984, pp. 281-282)."

Some definition? A definition that encapsulates everything is required and 'definition' is a weak word. One needs a zero-measurement, just to make a start.

One has to deal with everything: nominalism (1), substantialism specific (3), substantialism general i.e. to care for the purchasing power of the proprietor's capital (2), all at one at the same time. A (rigid) choice out of these capital maintenance concepts is a fundamental mistake. For some assets it holds nominalism, but for other assets (or even a part of a certain asset), gauged as being normal, it holds substantialism up to different gearing ratios and mostly, at the same time, also inflation is at stake so 'Constant Purchasing Power' (in the right way) must be implemented too in the one and only true income measure. Without assuming or believing anything. Always the outcome for each and every profit figure must be proved. Without proof, no single number, can be taken seriously. Everything deserves its proper place, including the exact calculation of the burden of taxation.

Also concerning the concepts of value, everything has to be considered: historical cost, replacement value, direct i.e. net realisable and indirect market value, etcetera. A (rigid) choice out of the different concepts of value cannot be made in order to value all assets correctly. The true value for one asset may be the historical cost, but it can be the replacement value or whatever for another one. What matters is the valuation most appropriate to the circumstances of the particular asset being valued i.e. the true value. In examples, the values are the given data, mostly precise values. In practice, one often does not encounter precise data but data-ranges. There is a chance, the true value is somewhere in between pessimistic lowest levels and optimistic upper boundaries.

It is happening just the other way round

On the one hand, one simply cannot ignore the distinctions between assets, neither with respect to 'valuation', nor with respect to 'capital maintenance', because various assets are indeed different and have divergent functions, while on the other it is possible to write down a unit monetary asset, a unit stock and also a working-unit of a material fixed asset as respectively unit A, unit B and unit C. Each and every asset has a name and a value(-interval) at any moment the balance sheet is drawn up.

This is by no means just a little error; it is contradictory to logic

The various assets are not treated in the same way: material fixed assets are being depreciated - don't ask how - while other assets get another treatment. Everybody does this and nobody seems to realise it is rather strange that unit A is being treated mathematically different from unit B, while the difference to one another is just the name, the line on the balance sheet. While one does value and maintain a house, a car and a piece of furniture (within Air France KLM: the buildings, the airplanes and the inventory) in either rigid way. Everyone seems to think, this is quite normal. However, a Boeing 747 really can be financed (the NORMAL gearing ratio is only one item of the gauging data) differently from the inventory of Air France KLM.

It is turning things cleanly upside down. There is logically no single reason for a discriminating mathematical treatment of assets A, B and C, whereas there is every reason to emphasize 'different standards for different assets', paraphrasing an old saying amongst economists.

Aristotle thought that heat was a primary quantity, a basic thing. Besides heat also light, electricity and magnetism were regarded - till two centuries ago - as being separate, different phenomenon. No one saw a deep-lying connection between them. In 1800, Volta constructed the galvanic cell with which a chemical activity can be converted into an electrical one, attended with heat and light manifestations. Different manifestations of something that is the same. It still lasted till around 1840 before the German doctor Julius Robert Mayer and the British brewer James Prescott Joule came to the formulation of what today is acknowledged as the law of conservation of energy.

Ground, buildings, inventory, stock, liquidities, etcetera, are different shapes of value. A unit monetary asset, a unit stock and also a working-unit of a tangible fixed asset can be written down as respectively unit A, unit B and unit C. Each asset has a name and a value(-interval) at each and every moment the balance sheet is drawn up. Again and again the issue at stake is a certain amount of units multiplied by the price per unit. Monetary assets are in fact also a quantity, an amount of markers at a certain price each.

Analogous to the law of conservation of energy in physics, the law of preservation of value holds true in economics, a natural law.^[1] No value can appear nor disappear just like that.

Although being a social science, a key economical notion is 'money', a quantity that can be and must be counted and those counts have to fit, because no money unit can appear or disappear just like that.

^[1]Preservation of Value, Jacobs, 1991, p. 39. Laws of nature hold true independent of time and place.