Accounting and economic profit. The economic essence of profit
In the case of competent implementation of entrepreneurial activity, any organization makes a profit. In the absence of such an effect, the enterprise is considered unprofitable and unprofitable. Motion monetary assets accounted for by different methods... Any owner closely monitors the progress of his business model and clearly monitors the flow of cash investments. For this, the income and expense of assets is monitored. From a specific case, significant differences can form between economic and accounting profit. What are meant by these two types? What is the specific mechanism for calculating the indicators? What is the role of material costs in the organization?
The mechanism for determining economic profit
From the height of entrepreneurial activity, profit will be a consequence implementation processes... The level of such sales can relate to both the products themselves and services. The measuring equivalent of profit is the generally accepted monetary unit in a particular state. Payments between counterparties can be made for other goods, semi-finished products, discounts and additional preferences in trade relations. The forms of such cooperation are divided into two types of profit
Fundamental Differences Between Accounting and Economic Profit
Profit type from point of view accounting is the most simple. The resulting value is the result of arithmetic calculations based on the general money supply and gross costs. These actions are performed throughout economic activity(warehouse procurement, production and sale of the final product). Accounting profit is general income minus costs. The implementation of such calculations has certain disadvantages:
- A variety of methods for calculating indicators can lead to the formation of a factor of incompatibility of results for further calculation.
- Inflation has a significant impact on the final analysis of a business. The profit of an organization is difficult to view through the prism of different periods of time.
- Gross output and capital dynamics are difficult to represent when analyzing accounting profit.
Gross output is a display of all products and services in monetary terms that an enterprise receives as a result of economic activities. A clear example is the rent for special machinery / equipment and the sale of finished products.
The expenses of the enterprise represent the paid obligations. They consist of a fund to pay employees, rent facilities, utilities, medical treatment of staff, taxation, and other contingencies. Thus, having produced all cost parts from the consolidated amount of income, it is possible to clearly determine the accounting type of profit. Many commercial directors practice reinvestment and dividend payments.
What is the basis of a company's economic profit? It is a mathematical substance that encompasses all aspects of an organization's activities. The principle of arithmetic operations is similar to accounting type... Gross income and expenses also appear here, but absolutely everything will need to be taken into account. financial operations... A whole system of indicators (profitability, cost of invested capital, return on investment) is designed to analyze in detail economic activities and adjust management decisions in a particular segment of the relationship. The model of stable growth of an enterprise requires systematic monitoring of work efficiency and assessment of risks and crisis situations. The division of indicators into calculated and analytical indicators allows for the gradation of accounting into tax and accounting.
A distinctive feature of accounting and economic profit is settlement methodology... The mechanism does not allow to provide for all forms of costs. In this case, the accounting profit will be determined according to the established algorithm of the funds received and all expenses. All divisions of the executive branch and the judiciary operate on this principle.
Economic profit provides clear answers to the realities of the economic activity of the subject. The information concerns not only the numbers on the documents, but also takes into account the actual state of the business model. Simply put, the economic type of profit takes into account total revenue, external costs (payments for services to counterparties) and internal. A accounting form calculation takes into account only income and external costs (costs).
Understanding Profit in Commerce
The entrepreneur monitors this indicator every day. The essence economic concept consists of a large number of measures that prejudice employee negligence, fraud and non-compliance. This is the only way to achieve the desired savings in assets and funds. The composition of costs may include information that is located outside the accounting area. Informal spending is the reality of today's business model. A striking example is the loss of profits that could be obtained due to certain circumstances. Bonuses, travel allowances, recruiting additional employees and more.
The management of any enterprise strives for profit. However, it can be calculated in different ways. In the research environment, there can be a wide range of approaches to defining and interpreting the profit of a commercial firm. Among the most common are accounting and economic. The border between them in some cases is found with difficulty - if we talk about the practical use of these methods. But at the level of conceptual understanding, accounting and economic approaches to the understanding of profit can be characterized by a tangible difference. How is it expressed?
Determination of accounting profit
What's happened accounting profit? By means of this term, it is customary to denote financial results sales of certain products or services. Accounting profit is determined on the basis of the provisions of the legislation in the field of accounting and is recorded in the accounting documents. As a rule, such sources should be provided to the regulatory authorities - first of all, to the Federal Tax Service. Among the key documents about which in question- gains and losses report. It records the difference between the firm's income, which is defined as an increase in total assets, and expenses, which indicate a decrease in the company's capitalization.
The ratio of accounting and tax profit
Profit in accounting is adjacent to an indicator that correlates with taxes. The fact is that the payment of the corresponding fees to the treasury is not always carried out by the company synchronously with the dynamics of changes in the value of the base for calculating payments. This is mainly due to the use of various deductions by the company, as well as the peculiarities of the legislative criteria for their application. A firm that has the right to exercise the corresponding privilege may not actually use it, as a result of which the net tax profit will be greater than the accounting one - which is recorded in the accounting documents. But in the next reporting period, accounting and tax profits, if there are no changes in the structure of revenue and costs, may already be leveled out - since the company will use deductions.
Modern economists record several basic types of accounting profit. Let's study them in more detail.
Types of accounting profit
There are 5 main types of accounting profit:
- gross;
- arising as a result of sales;
- profit before tax;
- profit from ordinary activities;
- net profit.
With regard to the gross indicator, it is defined as the difference between the amount of proceeds from sales - net of VAT and other payments to the budget provided for by law, and the cost of the corresponding goods, works or services. Profit from sales is determined based on the difference between the revenue for specific items and the costs associated with bringing the items to market. Profit before tax is defined as the difference between revenue and total amount expenses - everything that can be provided by the company's business model. Profit from ordinary activities is determined by subtracting from the previous figure tax payments and costs for the main activities of the firm. Net profit is also determined after deducting costs and fees to the budget, calculated in relation to other activities.
The essence of economic profit
Having studied what accounting profit is, and in what varieties it can be provided, we will investigate another term that is common among researchers. What is its essence? Economic profit is an indicator that characterizes, first of all, the increase in the indicators of the value of the company. It can be defined as the difference between the figure reflecting the return on equity and the product of the weighted average of assets by the cost of investment.
Differences between economic and accounting profits
How are economic and accounting profits fundamentally different? The first term implies consideration in the "formula" of calculating not only the actual figures, but also those that reflect the ratio of the potential assets of the firm, as well as its liabilities. Economic and accounting profit are quite similar concepts. However, the first term characterizes the enterprise rather in a strategic context, while the second - in a tactical one. The task of the accountant is to check whether certain production indicators, whether the reporting is correct, whether everything is in order with taxes. The task of the economist is to identify how stable the enterprise is in terms of the business model, what growth prospects it has, and what areas of production require urgent modernization.
Economic profit and opportunity costs
One of the most important criteria for calculating economic profit is the calculation of opportunity costs. What are they? Opportunity cost is a lack of profit due to refusal to choose a certain direction of investment. For example, if a company decides to start producing washing machines, abandoning the production of televisions, then in the event of a sharp decrease in the price of proposals from cable and satellite operators and an increase in population demand for televisions, it will not receive significant amounts of revenue. As well as vice versa.
From an accounting point of view, the structure of a firm's products may not be taken into account. The accounting specialist does not care - at least when it comes to his job responsibilities, what is the demand potential, what are the technological trends in this or that market segment. The main thing for him is to calculate the correct tax on accounting profit, monitor its timely payment, and fix the corresponding figures in the reporting.
The economist, in turn, when determining profit, can pay close attention to opportunity costs. Analyzing these or those numbers, he may come to the conclusion that it may be useful for the company's management to revise investment activities in favor of starting the release of new types of products.
Profit factors and their analysis
There are a number of key factors that determine a company's profitability. They can be roughly divided into internal and external.
The first are:
- quality of company management;
- the level of competence of the firm's managers;
- the competitiveness of the manufactured goods or services that are provided by the company;
- the level of organization of production, manufacturability of infrastructure;
- the performance of the equipment used;
- labor productivity of employees of the enterprise.
External factors that determine profitability:
- political situation;
- priorities in legislative regulation economic processes;
- supply and demand in the market segment in which the company operates.
Accounting profit is recorded on the basis of actual indicators without correlation with any of the factors noted. In turn, economic indicators - first of all, opportunity costs, may well be determined based on the analysis of relevant factors.
The importance of economic and accounting profit
For what purpose can economic and accounting profits be calculated? The definition of the first indicator is mainly needed by the enterprise itself. The owner of any business, first of all, builds a business model, improves it, analyzes it - for himself. In turn, the calculation of accounting profit is a necessity, which is largely explained by the need to provide government bodies- first of all, the FTS of various types of reporting.
Of course, the company can also pay great attention to this aspect. For example, if there is a need to determine the reason for the discrepancy in the planned and actual performance of the company. Economic profit is considered by many experts as one of the key criteria for assessing the effectiveness of investing in a business. At the same time, it is very important to determine the correct approach to its calculation. So, the main reporting document, in which the accounting profit is recorded - about profit and loss, has a specific structure, which is set at the level of the legislation of the Russian Federation.
Sources in which it is reflected economic profit are not defined in regulations. Each company develops the appropriate forms independently. Of course, in certain industries there may be generally accepted standards for the preparation of documents in which economic profit is recorded. But this does not mean that such uniform forms will be best suited for the business model of a particular organization. A situation may well arise in which the criteria for determining economic profit, the basis for its calculation, the company will have to develop entirely on its own.
What is more important - economic or accounting profit
Among Russian economists, there are different points of view about what type of profit is more important - economic or accounting. Some experts believe that due to the lack of criteria for calculating the first indicator, the second should be the key. Specific figures determined in documents such as the balance sheet, profit and loss statement of the company can give the management of the company all the necessary information regarding the state of affairs in business, experts believe. There are a large number of approaches to the interpretation of these indicators, and if they are used correctly, the management of the company may not need to apply any other methods of analyzing the business model.
There is also another point of view. In accordance with it, the profit in the balance sheet can very superficially reflect the real state of affairs in the enterprise. The indicators that are entered in the income statement may simply not affect the most important business processes. In this case, you cannot do without using economic methods research of commercial activities.
Economic profit as a criterion for the sustainability of an enterprise
Another argument put forward by specialists is that accounting profit makes it difficult to determine what the essence of the sources of revenue is. The accountant records the income in its pure form and does not analyze, in the general case, through what decisions, resources they appeared, what factors predetermined their specific value. Let's take a look at a simple example.
There are 2 factories operating, producing the same products - for example, building materials. Their revenue, as well as profitability, is generally the same. The main documents - the balance sheet, the profit and loss statement, have a very similar structure in both enterprises, the indicators recorded in it are comparable when comparing firms. If you look at any accounting account used by this or that enterprise, all types of profits are recorded in practically the same amounts. However, the main customers of the first plant are large holdings, the second mainly sells building materials to small and medium-sized enterprises. Due to the complication of the political situation, the activities of large holdings purchasing the bulk of products at the first plant becomes impossible in Russia. The contracts are terminated and these customers leave the market. The building materials plant is going through very difficult times. The second company, meanwhile, is developing well. Demand for its products is steadily growing - in connection with the opening of new production facilities in the Russian Federation and the needs of companies for high-quality building materials.
We see completely different results of commercial activities of two entities operating in the same segment and with comparable accounting indicators. However, such a state of affairs could to a certain extent be calculated if economic analysis and the corresponding type of profit was determined. As we noted above, an accountant keeps records of numbers, an economist calculates a company's development strategy, taking into account opportunity costs. These may well include the shortfall in the first building materials plant of profit on the fact of cooperation with small and medium-sized enterprises - as the second company does.
Of course, even a successful business venture is required to record accounting profits. At least in connection with the need to provide relevant information to tax office... The second plant will also keep accounting for income tax. However, the work of economists in this enterprise will also be carried out actively, since the study of opportunity costs for them - the most important factor ensuring the competitiveness of the company and the sustainability of the business.
So, accounting profit is the actual numbers that allow you to determine the level of profitability of the company, and in many respects - the effectiveness of its current business model. Economic profit is not only actual, but also calculated indicators that allow characterizing the sustainability of a business model. These include opportunity costs. Despite the fact that among economists there may be a dissimilarity of points of view regarding the priority of using one or another approach, it is recommended to use both concepts simultaneously if possible.
A chemistry teacher who received at the end of the year after all deductions (including income tax) 24 thousand rubles a year, in the new year decided to open his own store. His starting capital is 30 thousand rubles. He expects to receive revenue equal to 180 thousand rubles.
To implement this project, he needs:
1. to pay from the proceeds at the end of the year the rent in the amount of 48 thousand rubles. for the premises of the store for the year;
2. at the beginning of the year, to carry out repair work in the rented premises worth 30 thousand rubles;
3. hire three workers with a pay of 16 thousand rubles. each year, with 6 thousand rubles. pay at the beginning of the year as an advance, and the remaining 10 thousand rubles. pay at the end of the year from the proceeds;
4. borrow from the bank the amount of money that is missing to cover the costs for a period of a year;
5. to leave the work of the teacher and concentrate entirely on entrepreneurial activity.
He has no other costs. The bank interest on deposits is 40%, and on loans - 50%.
Define:
a) The amount of accounting and economic profit for the year (in thousand rubles) excluding income tax.
b) At what rate of income tax will entrepreneurial activity be beneficial to the teacher (the rate is set as a percentage of profit).
Solution:
a) The amount of accounting profit (BP) is equal to the difference between the proceeds from the sale of products (B) and explicit costs (NI).
BP = B - YI
Explicit costs (accounting, direct, external costs) are those payments that a firm makes to suppliers of resources (labor, land, capital) that do not belong to the firm's owners. These include the costs of wages and salaries for employees, payments for raw materials and supplies, rent, depreciation charges, interest payments for loans, payments for electricity, heat, light, etc.
Economic profit (EP) is equal to the difference between the amount of accounting profit and implicit costs (NI).
EP = BP - NI
Or the difference between revenue and economic costs (EI), which in turn consist of explicit and implicit costs.
EP = B - EI = B - (YI + NI)
Implicit costs (implicit, internal costs) are costs associated with the exploitation of the firm's own resources. For example, a small enterprise exploits its own labor, capital, premises. In other words, it is the cost of the missed opportunity. For an entrepreneur, the implicit costs will be wage, which he could receive if he was employed, and not self-employed. For the owner of capital, implicit costs are the profit that he could receive by investing his capital, for example, in a bank. But having invested this money in his own business, he incurs implicit costs equal to the lost bank interest. For property owners, the implicit cost is rent which he could get by renting out his property.
When determining explicit and implicit costs, it is convenient to use the following table, in which we divide all costs into explicit and implicit:
To start at the beginning of the year, the teacher will need 30 thousand for repairs + 18 thousand rubles. for wages at the beginning of the year, of which he has only 30 thousand rubles. It means that 18 thousand will have to be borrowed from the bank. Paying for a loan is a clear cost. These 30 thousand, which he will spend on repairs, he could put on a deposit in the bank and receive an income of 40% of 30 thousand rubles. Thus, the lost bank interest the deposit is equal to 12 thousand rubles.
Let's find the accounting profit:
BP = B - YI = 180 - 135 = 45 thousand rubles.
Then the value of the economic profit will be equal to:
EP = BP - NI = 45 - 36 = 9 thousand rubles.
b) Business activities beneficial to the teacher as long as the economic profit is greater than or equal to zero. Consequently, income tax should be less than 9 thousand rubles, which is 20% of 45 thousand rubles.
See more
- Market structure analysis / Problem №199. Calculation of damage from monopoly
- Analysis of economic activity / Problem No. 5. Calculation of changes in the total cost of production due to the influence of factors and their share in the total change
- Main macroeconomic indicators / Problem №26. Calculating GDP by income
- Consumer behavior / Problem №145. Calculation of per-unit and lump-sum taxes
- Market failures and government regulation / Problem №194. Calculation of the socially optimal level of production of a firm
- Production and costs of the firm / Problem №71. Calculation of costs
- Production and costs of the firm / Problem number 72. Calculation of costs
- Production and costs of the firm / Problem number 74. Calculation of accounting and economic profit
- Production and costs of the firm / Problem no. 75. Calculation of depreciation charges, accounting and economic costs, profit
- Production and costs of the firm / Problem number 76. Calculation of the amount of annual accounting and economic costs, economic and accounting profit
- Production and costs of the firm / Problem number 77. Calculation of accounting and economic profit and income tax rate
- Production and costs of the firm / Problem №78. Calculation of depreciation charges, accounting and economic costs and profits
- Production and costs of the firm / Problem number 79. Determination of functions of constant, variable, marginal and average costs
- Production and costs of the firm / Problem no. 80. Definition of functions of total and marginal costs
- Production and costs of the firm / Problem number 81. Calculation of the minimum of the function of average total costs
- Production and costs of the firm / Problem №82. Function definition and total cost calculation
"Finance", N 4, 2003
The question of determining the financial result of an enterprise is one of the fundamental and most difficult issues facing accounting. Numerous studies on the subject of studying the correspondence of profit calculated in accounting to its economic content have led to the differentiation of such concepts as "accounting" (previously it was called balance sheet) and "economic" profit.
Accounting profit is usually understood to mean profit calculated in accordance with the current accounting rules and shown in the income statement as the difference between income and expenses recognized in the reporting period. The concept of "accounting profit" in Russia was introduced on January 1, 1999 by the Regulations on accounting and accounting statements v Russian Federation, approved by the Order of the Ministry of Finance of Russia dated July 29, 1998 N 34n (clause 79). According to this Regulation, accounting profit is the final financial result identified for reporting period based on the accounting of all business transactions and evaluation of articles balance sheet... Despite the fact that in different countries ah the methodology for calculating the profit indicator may differ, all these methods are united by the use of the accrual method and (with rare exceptions) the principle of historical cost (cost of acquisition) in assessing costs.
The definitions of accounting profit have traditionally been based on two main concepts: the concept of wealth maintenance, or capital preservation, the concept of efficiency, or capital accumulation.
According to the first concept, the financial result (profit) is an increase during the reporting period of equity capital (funds invested by the owners) of the enterprise and is the result of improving the welfare of the company. This concept goes back to the thought expressed by Adam Smith that profit is the amount that can be spent without encroaching on capital, as well as to the statement of John Hicks, who clarified this idea, according to which profit is the amount that can be spent over some period of time. period of time and at the end of this period have the same wealth as at the beginning.
This concept is sometimes also called the concept of profit based on changes in assets and liabilities (a static balance sheet model, where assets are represented in assets and sources in liabilities). This is because, under this approach, revenue or other income can only be recognized as a result of an increase in an asset or a decrease in a liability, and, accordingly, an expense cannot be recognized unless it is caused by a decrease in an asset or an increase in a liability. In other words, profit represents an increase economic resources at the disposal of the enterprise, and the loss - by their reduction.
According to the second concept, profit is the difference between the income and expenses of the enterprise and a measure of the efficiency of the enterprise and its management. Profit, according to this concept, is the result of the correct allocation of revenue and expenses for the respective reporting periods, and the majority of non-cash assets and liabilities are the result of such allocation. The correct separation of income and expenses implies the correlation in a given reporting period of "effort" (ie expenses) and the corresponding "achievements" (ie income). With this approach, income and expenses related to future periods will be recognized as an asset or a liability, regardless of whether such an asset or a liability represents a real future inflow or outflow of economic resources (dynamic balance sheet model, where an asset is treated as an expense that passes into costs, and liabilities - as incomes that should become values). This approach, in essence, is the basis of the concept double entry in accounting, through which a double financial result is revealed: as an increase in equity capital (statistical model of the balance sheet) and as the difference between income and expenses ( financial model balance).
In world practice, the concept of maintaining welfare is currently recognized as the dominant concept, and profit is determined through changes in assets and liabilities. However, the second concept is also used. This is evidenced by the use of two types of accounting profit: "total" (comprehensive) profit, as a result of changes in the capital of the enterprise due to all transactions, except for transactions with owners, and "operating" profit (i.e., profit from current, or operating, activity), reflecting the efficiency of the main activity of the enterprise for the reporting period.
The accounting profit indicator is not without its drawbacks. The main ones are the following:
- there is no unambiguous and clear formulation of the concept of accounting profit in both domestic and foreign literature;
- by virtue of the assumption accounting standards different countries (and often within the same country for different enterprises) the possibility of using different approaches in determining certain income and expenses, profit indicators calculated by different enterprises may not be comparable;
- change in the general price level (inflationary component) limits the comparability of data on profits calculated for different reporting periods.
The amount of profit reflected in the financial statements does not allow assessing whether the company's capital was increased or wasted for the reporting period, since all the economic costs of the enterprise for attracting long-term resources are not fully reflected in the financial statements at the moment. The reporting does not directly recognize the "cost of capital" factor, i.e. the fact that the use of long-term resources for the enterprise from an economic point of view is more expensive than the arithmetic sum of paid interest and dividends.
So, despite the fact that the cost of using long-term borrowed resources may be close to the amount of interest paid on them (taking into account the effect that interest payment has on tax liabilities company), the cost of using the share capital is not limited to the amount of dividends paid. for instance, in order to attract equity capital to its business, the company must provide a return on investment comparable to that that an investor could receive on similar investments with similar risks. If the company cannot provide such profitability, then it will not be able to attract investors' funds. The above mentioned minimum return on capital invested by shareholders can be considered as the cost of attracting it.
From an economic point of view, the capital of an enterprise increases when economic benefits received by the enterprise from the use of long-term resources, exceed the economic costs of attracting them (whether borrowed or funds of shareholders). The converse is also true: if the economic benefits received are less than the estimated value of the "cost of capital", the company actually squanders capital.
This provision is actively used in investment analysis and most investors when taking investment decisions, including decisions on the acquisition of shares of a particular enterprise. However, it should be noted that it is currently impossible to obtain such information directly from the financial statements.
In other words, the company can be profitable according to the accounting data, but "eat up" its capital. The desire to assess the efficiency of capital use has led to the active use of the indicator of economic profit in foreign practice.
Economic profit is usually understood as an increase in the economic value of an enterprise. Moreover, the concept of "economic profit" in last years in Western practice in the context of market development valuable papers significantly transformed in comparison with the first half of the twentieth century. There are many discrepancies in determining how to calculate such an economic value, but all of them are united by a fundamental difference in comparison with the accounting interpretation in the understanding of what value after the reporting period is considered to correspond to the "level of wealth" at the beginning of the period.
Economic profit is usually defined as the difference between the return on invested capital (the tangible expression of which is net operating assets) and the weighted average cost of capital multiplied by the amount of invested capital:
EP = Invested capital H (ROIC - WACC),
where: EP - economic profit;
R - return on invested (invested) capital, which is calculated as the ratio of net operating profit after taxation to the amount of invested capital;
W is the weighted average cost of capital calculated by the formula:
W = (Rf + b "Rem) H E + (Rf + Rdm)" (1 - T) H D
where: Rf - risk-free rate of return;
Rem is the market risk premium for investments in shares;
b - the degree of riskiness of the asset;
Rdm - market risk premium for debt obligations;
T - effective rate taxation;
E - the share of equity (equity) capital in the total capital of the company in percent;
D - the share of borrowed capital in the total capital of the company as a percentage.
Taking into account the fact that in Russian conditions, due to the underdevelopment of the information base, it is rather difficult to determine many of the indicators necessary for calculating the weighted average cost of capital, in practice the following algorithm is often encountered, which uses basic indicators for developed economy, but introducing certain adjustments for Russian specifics:
- the risk-free rate at the beginning of the reporting period is determined based on data on the yield to maturity of long-term Eurobonds of the Russian government;
- the market risk premium is taken equal to 8.5% (the value usually taken for countries with " economies in transition", including the countries of Eastern Europe and Russia) and is adjusted by the coefficient b, set for a similar industry (ie, for companies - peers in the United States);
- the premium on ruble obligations versus dollar obligations is determined based on data on three-month deposits in the respective currencies;
- the results obtained are summarized.
In addition, the calculation of the weighted average cost of capital in Russia is characterized by a certain degree of conventionality, including due to instability economic situation, which is reflected in strong fluctuations in interest rates. This can be judged by the dynamics of the W index for the example below, which in 1999 was 74%, in 2000 - 44%, and in 2001 - already 30%.
It is necessary to distinguish the indicator "net operating assets", which characterizes the amount of invested capital, from the concept of "net assets", as they are designated by Order of the Ministry of Finance of Russia dated August 5, 1996 N 71 "On the procedure for assessing the cost net assets joint stock companies". In comparison with the indicator of" net assets "used in domestic practice, the concept of" net operating assets "also includes assets whose funding source is short-term and long-term interest-bearing liabilities.
So, economic profit allows you to compare the return on invested capital of a company with the minimum profitability required to meet investors' expectations and express the resulting difference in monetary units... Using the formula above, economic profit can also be defined as the difference between net operating income after tax and capital invested multiplied by the weighted average cost of capital. Such a calculation of economic profit will be more suitable for its interpretation as the difference between what the company earns over a specific period of time, and the minimum that it must earn in order to satisfy its investors.
We can say that economic profit differs from the indicator of accounting profit in that its calculation takes into account the cost of using all long-term and other interest-bearing liabilities (sources), and not just the cost of paying interest on borrowed funds, as is the case when calculating accounting profit. In other words, accounting profit exceeds economic profit by the amount of opportunity costs or costs of rejected opportunities. It is economic profit that serves as a criterion for the efficiency of resource use. Its positive value means that the company earned more than is required to cover the cost of the resources used, which means that the company created additional value for those who provided it with their capital.
If the situation is the opposite, then this indicates that the organization was unable to cover the cost of using the resources involved, or, in other words, that it wastes away the capital provided to it. Thus, the lack of economic profit can cause the flow of capital to other areas of use.
The existence of the concepts "accounting" and "economic" profit does not mean the possibility of direct comparison of their values. Each indicator can have its own scope. It seems more correct to characterize them as complementary methods of analyzing the activities of economic entities. The use of an indicator of economic profit can both confirm and deny conclusions drawn from the indicator of accounting profit, and become the reason for further analytical work. From the point of view of assessing the effectiveness, the indicator of economic profit gives a more complete idea of the efficiency of using the existing assets by the enterprise, in comparison with the indicator of accounting profit, due to the fact that it compares the financial result obtained by a particular enterprise with a result that will provide it with real, and not only nominal, preservation invested funds. In this regard, it is the indicator of economic profit that is seen as more capacious and useful when an investor makes a decision about his actions in relation to the company's securities.
Consider a method for calculating the indicator of economic profit and demonstrate it additional features on the example of a large domestic confectionery enterprise.
For a more visual illustration of the following conclusions, some of the results of the calculations were combined in Table 1.
Table 1
Accounting profit and economic profit of OJSC Confectionery Factory (RUB mln)
Tables 2 and 3 show the Balance Sheet and Profit and Loss Statement of this enterprise for 1999 and 2000. It is easy to see that the company's revenue in 2000 compared to 1999 increased insignificantly (+ 3%), and the net profit fell altogether (-5%). Nevertheless, the company's net profit in 2000, according to the Profit and Loss Statement, was a significant amount of 190 million rubles. against 201 million rubles. in 1999. If we restrict ourselves to this information, then it would be possible to conclude that, despite some deterioration of the situation in 2000 compared to 1999, 2000 was quite successful for the enterprise and the shareholders, apparently , must be satisfied (the situation is unfavorable, but not critical). Taking into account the above data, one would assume that a decrease in net profit (and, in addition, and profitability of sales), should lead to a decrease in the company's stock prices in 2000 compared to 1999.
table 2
Balance sheet of OJSC Confectionery Factory (RUB mln)
31.12.2000 | 31.12.1999 | 31.12.1998 | |
Assets Fixed assets |
|||
Intangible assets | 1,2 | 0,9 | 1,0 |
Fixed assets | 929,5 | 505,9 | 362,0 |
Construction in progress | 23,2 | 375,5 | 358,2 |
Long-term financial attachments | 66,2 | 100,5 | 66,9 |
Total non-current assets | 1020,1 | 982,8 | 788,1 |
Current assets | |||
Stocks | 312,8 | 352,9 | 257,6 |
Accounts receivable | 220,3 | 180,3 | 154,4 |
Short-term investments and cash | 29,8 | 29,8 | 50,0 |
Other current assets | 0,3 | 0,5 | 0,9 |
Total current assets | 563,2 | 563,5 | 462,9 |
Total Asset | 1583,3 | 1546,3 | 1251,0 |
Passive Capital and reserves |
|||
Authorized capital | 10,2 | 10,2 | 9,8 |
Extra capital | 725,2 | 679,4 | 558,8 |
Income reserves | 10,4 | 10,3 | 10,5 |
Undestributed profits | 251,9 | 244,8 | 178,7 |
Total equity and reserves | 997,7 | 944,7 | 757,8 |
short-term obligations | |||
Loans and credits | 375,0 | 346,8 | 261,5 |
Accounts payable | 210,5 | 254,5 | 231,3 |
Other short-term commitments | 0,1 | 0,3 | 0,4 |
Total short-term commitments | 585,6 | 601,6 | 493,1 |
Total Liabilities | 1583,3 | 1546,3 | 1251,0 |
Table 3
Profit and loss statement of OJSC Confectionery Factory (RUB mln)
2000 year | 1999 year | |
2259,0 | 2198,7 | |
| (1578,0) | (1534,6) |
Depreciation | (36,0) | (15,0) |
Gross profit | 645,0 | 649,1 |
Business expenses | (59,3) | (41,8) |
Administrative expenses | (234,0) | (171,9) |
Sales profit | 351,7 | 435,4 |
Interest receivable | 0,4 | 0,3 |
Interest payable | (86,9) | (108,0) |
non-operating expenses | (43,2) | (91,4) |
Profit before tax | 222,0 | 236,3 |
(32,0) | (35,6) | |
Net profit | 190,0 | 200,7 |
However, if we analyze the activities of the enterprise in 2000 and 1999. from the point of view of the economic profit received by him (the calculation of the indicator of economic profit is given in Table 4), then the assessment will change to the exact opposite.
Table 4
Calculation of the economic profit of OJSC Confectionery Factory (RUB mln)
2000 year | 1999 year | |
Proceeds from the sale of goods, works, services | 2259,0 | 2198,7 |
The cost of goods sold, works, services (excluding depreciation) | (1578,0) | (1534,6) |
Business expenses | (59,3) | (41,8) |
Administrative expenses | (234,0) | (171,9) |
Other operating and non-operating income less other operating and non-operating expenses (excluding interest income and expenses) | (43,2) | (91,4) |
Profit excluding interest, tax on profit and amortization (EBITDA) | 344,5 | 359,0 |
Depreciation | (36,0) | (15,0) |
Income tax and other mandatory payments | (32,0) | (35,6) |
Adjustment of tax on interest income and expenditures | 12,5 | 16,2 |
Net operating income after taxation (NOPAT) | 289,0 | 324,6 |
capital<1> | (567,5) | (755,2) |
Economic profit | (278,5) | (430,6) |
It can be seen that in order to justify the use of the loan and equity capital provided to him in 1999 in overall size(according to the balance sheet) RUB 1,019 mln, the confectionery was supposed to receive a net operating profit after tax (i.e., profit excluding interest and extraordinary income and expenses) in the amount of RUB 755.2 mln, or 74% of the invested capital ... The factory was able to provide only 324.6 million rubles. net operating profit (or 31.9% on invested capital), thereby losing RUB 430.6 mln. An equally bleak picture is emerging with respect to 2000, in which, in order to justify the use of existing capital, the enterprise should have received a net operating profit in the amount of 567.5 million rubles. (43.9% of the invested capital), but was able to provide only 289 million rubles. (or 22.4% of the invested capital), having actually received less than 278 million rubles. However, from the point of view of approaching the minimum required level of profitability, 2000 turned out to be more successful than 1999, since in 2000 the company was able to provide 51% of the minimum required level of net operating profit (against 43% in 1999). Based on the calculations made, it could be assumed that an improvement in the situation in terms of economic profit should become one of the factors contributing to an increase in the company's stock prices in 2000 compared to 1999.
We can say that in terms of economic profit, the situation has improved somewhat, as the volume of economic losses for shareholders has decreased. However, it can be assumed that the improvement was not due to the activities of the enterprise (which, on the contrary, had a decrease in the return on invested capital from 31.9% to 22.4%), but due to a general improvement in the economic situation and a corresponding drop in the overall level of interest rates and required yield. Nevertheless, from the point of view of increasing the welfare of its shareholders and investors, it can be concluded that OJSC Confectionery Factory is not coping with the task before it.
Let us now analyze the dynamics of the company's stock quotes. So, as of January 1, 1999, the quotation of the company's shares was 128.4 rubles. per share, while as of January 1, 2000 it fell to 100.1 rubles. per share, although later it rose to 123.1 rubles. per share (as of January 1, 2001). If we take into account only the data on the accounting profit earned by the company in 1999 and 2000, such dynamics may seem unjustified, because the company, although it received significant accounting profit for both of these years, in 2000, the profit decreased slightly (therefore, the change in quotations if it were, it would have to have the opposite direction). However, if we take into account the unfavorable situation with the receipt of economic profit, the situation becomes more understandable and the drop in quotations in 1999 (especially against the background of the general growth of Russian stock market) can be partially explained by the significant amount of lost economic profit. The subsequent growth of quotations at the end of 2000 to 123.1 rubles. per share can also be explained in part by a decrease in lost economic profit compared to 1999, as well as an expected further fall in interest rates, as a result of which it will be easier for the company to achieve the minimum required level of profitability even without significant improvement in operating efficiency.
Table 5
Calculation of the minimum required return on invested capital
31.12.1999 | 31.12.1998 | |
Fixed assets and work in progress building | 881,4 | 720,2 |
Other long-term operating assets | 101,4 | 67,9 |
Accounts receivable, short-term investments and funds | 210,1 | 204,4 |
Stocks and other current assets | 353,4 | 258,5 |
Current assets | 563,5 | 462,9 |
Accounts payable and others non-interest bearing short-term liabilities | (254,8) | (231,7) |
Working capital | 308,7 | 231,2 |
Total net operating assets | 1291,5 | 1019,3 |
Weighted average cost of capital<2> | 43,94% | 74,09% |
The minimum required income for the invested capital | 567,5 | 755,2 |
Table 6
Calculation of the weighted average cost of capital
Equity (share) capital price | ||
Risk-free interest rate (rate on Russian Eurobonds series Euro USD 2028) | 17,3% | 44,3% |
Market premium for the risk | 8,5% | 8,5% |
Beta coefficient for food industry | 0,75 | 0,75 |
Equity price in dollar terms obligations | 23,68% | 50,68% |
Premium on ruble obligations<3> | 22,1% | 28,0% |
Equity price in rubles obligations | 45,78% | 78,68% |
Debt capital price | ||
Market interest rate<4> | 45,0% | 60,0% |
Deduction for tax purposes<5> | (6,5%) | (9,0%) |
Equity price including taxes | 38,5% | 51,0% |
Market price capital | ||
Number of shares (thousand) | 10 248,0 | 10 248,0 |
Share price (RUB) | 100,1 | 128,4 |
Market value of equity (RUB million) | 1 025,8 | 1 315,8 |
Market value of borrowed capital (RUB million) | 346,8 | 261,5 |
Percentage of equity | 74,7% | 83,4% |
Percentage of borrowed capital | 25,3% | 16,6% |
Part of the stake attributable to own capital | 34,20% | 65,62% |
Part of the rate attributable to the borrowed capital | 9,74% | 8,47% |
Weighted average cost of capital | 43,94% | 74,09% |
<4>Refinancing rate of the Central Bank of the Russian Federation.
<5>Based on the actual tax rate, calculated as the ratio of income tax to profit before tax according to the income statement.
V.D. Novodvorsky
D. e. Sci., professor
Moscow city
Probably, every person understands the term "profit" - this is the benefit that the company or individual entrepreneur after carrying out their activities. But not everyone knows that profit can be both accounting and economic. What are the differences between these two concepts? Let's try to find the distinctive features of these economic terms.
Accounting profit represents the benefit the company has received and is calculated by subtracting all official costs from the total revenue. In other words, it's the difference between legal and expense. Proceeds can be obtained from the sale of manufactured products, performance of various kinds of work or rendering to their counterparties. As for expenses, there can be quite a lot of them, since this includes salaries of employees, and rent, and utility bills, and taxes, and the purchase of office equipment, as well as the cost of research and development. The difference between the income and expenditure parts of the company's budget is precisely the accounting profit, which can subsequently be spent on the payment of dividends or made as an investment in production.
Economic profit is the result of a deduction between all income and expenses, therefore it reflects the real state of affairs at the enterprise, that is, whether it is functioning successfully or is in a crisis situation. Here, not only the official revenue of the company is used as income, but also other sources of income. Money, which are not officially reflected in accounting. In this case, expenses should include not only those expenses that were made officially with documentary evidence, but also those that are not official, but, nevertheless, may be present at the enterprise. In addition, economists also classify lost profits as expenses, that is, income that could have been received under certain circumstances, but were not acquired for one reason or another. Also, expenses may be recognized as additional bonus payments to employees or some kind of entertainment expenses that are not accounted for in accounting.
The difference between accounting and economic profit lies in the method of their calculation, in which certain income and expenses may or may not be taken into account. So, accounting profit is determined only on the basis of documentary evidence of income and expenses, since only in this way can they be officially certified by the regulatory authorities. Economic profit does not focus on papers, but takes into account the specifics of doing business, considers the issues of missing out on any benefit or spending funds without official registration.
Conclusions site
- Accounting profit is based on income and expenses, formalized and confirmed by various documents, and economic profit, on the contrary, is not always based on documents;
- Accountants calculate profits based solely on fait accompli, while economists determine profits by taking into account all transactions - whether or not that has occurred.
- The use of customer-supplied raw materials for the production of finished products: accounting, consumption rates, write-off Reflection of services for the processing of materials
- Terms of payment of insurance premiums and submission of reports under the new rules
- Reminder of admission to off-budget (paid) places How to pay for tuition
- Online courses for accountants, distance accounting courses online, online training for accountants Accounting for cash transactions and transactions with accountants