Various Subjects

IF FOR SCIENCE ONLY

A responsible manager of an entire enterprise or a single profit-center has to know what the existing total value is and the added value, in other words the capital together with the profit. The yield i.e. profit divided by capital, must be reliably known within a known margin of accuracy, under specified conditions, to be able to give guidance. … If, when and as long as it holds 'profit is an opinion', one is forced to look at other (financial or not) 'leading indicators' … more

According to at least some people, the objective of a capitalist business is taken to be the maximisation of the wealth of its owners, of course within legal, ethical, political and maybe more boundaries. The wealth of its owners can be measured in terms of the period profits i.e. the maximum dividends paid and/or shareholder value i.e. the market value of the company's shares. Both items, profit and shareholder value, are discussed in Period Profit and Shareholder Value. It follows, all decisions made by managers should be those which ultimately lead to the maximisation of profit and/or shareholder value. The owners of a business provide necessary capital and in doing so accept a certain amount of risk. In return, they benefit from the profits earned by their business. … How high is the period profit? A basic question. Other questions: what is the specification? Which part of the profit is operating profit, what are the so-called 'holding gains' and what is the result out of speculation? Gearing profits? Trading profits? … more

Profit is not so important according to some people, more important they say, is the creation of shareholder value. Both conceptions, 'profit' and 'shareholder value', are not conflicting views but are mostly in accordance with one another. Period profit is the realised surplus value; it is the extra that there is at the end of a period over and above that which was there at the beginning. Shareholder value, the worth of an enterprise, is at any moment the present value of all future proceeds minus loans and current liabilities; the worth of the shares, the possessions of the owners. To create more worth for the owners indeed is very important too, but it is something other than period profit. … more

For a short comment on EVA^® refer to NVA beats everything including EVA^®. The subject matter here is the CVA^® concept. Can it stand the test? With reference to 'Plato and the cave', Ottosson & Weissenrieder introduce Operating Cash Flow Demand (OCFD) - with certain known characteristics - as a shadow on the wall of the cave. CVA then measures observable 'real cash flows' against the shadow, thus gaining knowledge about actual performance relative to 'the shadow'. It should give a practical way to discuss 'true returns'. Apart from observing the reality outside the cave (that will always be more desirable), not even the shadow in itself can stand the test. … more

Inflation (changes in the purchasing power of money) is happening and we have to deal with it - no question about that - that is a certainty - the question is just how? By changing the measuring unit as CPP-accounting does? A change in some price index represents the 'exchange rate' between currency units of different dates. The essence of CPP is to translate all measurements in currency units into units at a common date. The logic would be that CPP provides a stable measuring unit to measure profit, whilst an 'unstabilised' i.e. not indexed currency unit, fails to do so. … more

Standard prices of the working-units of tangible fixed assets are, amongst other quantities, required input data in order to establish minimum product prices. However, this important data is not calculated exactly, but - if calculated in conformity with the best textbooks in use world-wide - is consistently too low, as is demonstrated in a presentation … more

On the basis of basic data concerning tax rate, standard gearing, standard cost of capital, and other necessary starting data, one can quite easily determine an 'integrated financial instrument panel' and all can be done in a very easy way. … more

Financial tools like Microsoft Excel using PPR are dangerous
Interest rates are either continuous or discrete. Interest formulas are written in either continuous or discrete form. Continuous rates together with continuous interest formulas or discrete rates with discrete formulas. It does not matter (au fond) which one you choose, both roads lead to Rome. You only cannot mix both. Continuous rates do not fit into discrete formulas nor do discrete rates fit into continuous formulas. Microsoft Excel (the Financial Functions in Microsoft XL and other financial tools as well) makes a mess by mixing these up. … more