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Profitability Analysis in Managerial Accounting

- Profit Margin, Opportunity Cost and Breakeven Point -

Cat: ECO
Pub: 2016
Compiled by Kanzo Kobayashi

Profitability Analysis in Managerial Accounting


  1. Introduction
  2. Opportunity Cost:
  3. Profitability Analysis:
  4. Profit and Loss (PL) Statement:
  5. Break-even Point (BEP):
  6. Shrinking Profits in Accounting:
  7. Why so many definitions of profit:
  1. 序文:
  2. 機会費用:
  3. 収益性分析:
  4. 損益計算書:
  5. 損益分岐点:
  6. 会計における縮小する利益:
  7. なぜ利益の定義が多いのか:
  • Profitability analysis is important and interesting; which is defined from different viewpoints; as a social entity from financial accounting, as CEO from management accounting, and as a consutant analyzing human & organizational behaviors from psychology.
  • 収益性分析は重要でかつおもしろい。それはさまざまな視点から定義されている。財務会計における社会的主体として、管理会計におけるCEOとして、心理学から人間・組織行動を分析するコンサルタントとして。

>Top 0. Introduction:

  • IFAC (International Federation of Accountants) defined key concepts regarding Cost Measurement as a guideline:
  • Three categories of Cost Measurement:
    1. Cost Accounting: (Historical)
      1. Cost of goods sold
      2. Inventory valuation
    2. Performance Evaluation & Analysis: (Historical)
      1. Assessment of current strategy & Plans
      2. Integrated cost/operational performance measures (E.g., cost variance, capacity measurement, process efficiency, etc.)
      3. Profitability reporting
      4. Process analysis
      5. Learning & corrective actions
    3. Planning & Decision Support: (Predictive)
      1. Fully absorbed and incremental costing
      2. Adaptive operation and cost-based planning, budgeting & forecasting
      3. Product process, channel, and customer strategic adaptations.
      4. Enterprise optimization (E.g., make vs., buy, outsource, etc.)

0. 序文:

  • 国際会計士連盟 (IFAC): 1977設立、130カ国、175加盟団体、本部NYC
  • 傘下に基準制定審議会
  • IFACの公益性を、米国政府 PIOB (Public Interest Oversight Board, 公益監視委員会)が監視

>Top 1. Opportunity Cost:

  • An opportunity cost is a difference of benefit-A a person chose and benefit-B the person could have received by alternative action. This cost is therefore most relevant for two mutually exclusive events; whereby choosing one event, a person cannot choose the other.
    • The amount of other goods and services which could have been obtained instead of any good. If it had not been produced, the resources used in making it could have been used to produce other goods and services instead. If it had not been bought, the money spent on it could have been used to buy the other goods. (Oxford Dictionary of Economics)
    • In finance, opportunity costs are used to measure the difference between a chosen investment and one that is foregone. (Investopedia)
    • Also it extends to personal finance. The opportunity cost of going to college is he money a person would have eraned if he had worked instad. A person loses four years of salary while geting a degree; however, he hopes to earn more during his entire career to offset the lost wagaes. The risk of achieving greater benefits with another option is the opportunity cost. (Investpedia)
      • Oxford Dictionary:
        Opportunity <opportune: convenient or appropraite for a particuar action <L. ob- 'in the directionof' + portus 'harbour'; describing the wind driving towards the harbour, hence 'seasonable'.
      • Cost: the effort, loss or sacrifice necessary to achieve or obtain something. <L. constare 'stand firm, stand at a price';

1. 機会費用:

  • 機会費用とは、A案件とB案件があった場合、最大利益を生む案件を選択する場合と、それ以外の選択肢による利益の差。本来取り損ねた潜在的な損失分を費用と表現。
  • cost, (A)B:
    AにB費用がかかる。The camera cost me $300.
    AにBの損失をもたらす。It didn't cost me anything.
  • Opportunity cost:
    1)機会費用, 2)機会損失

>Top 2. Profitability Analysis:

  • Profit Margin:
    • Profit Margin Ration is partcularly important to operating managers because it relects the company's pricing startegy and its ability to control operationg costs.
    • Profit Magirns differ among industries depending on the nature of the product sold.
    • Also, note that profit margin and asset turnover tend to vary inversely. Companies with high profit margins tend to have low asset turns, and vice viersa.
    • ROA (Return On Assets) = P×A×T(FinancialLeverage)
      = ProfitMargin × AssetTurnover = $\frac{NetIncome}{Assets.}$
      • ROA is a basic mesure of the efficiency
      • It differs from ROE as a % of the money provided by only owners.
  • Gross Margin:
    • When analyzing profitability, it is often to distinguish between Variable costs and Fixed costs.
      • Companies with a high proportion of Fixed costs are more vulnerable to sales declines thatn other firms.
      • The accountant doe not differentialte between Fixed and Variable costs when constructing an income statement.
  • Four levels of profit margin ($) or profit margin ratio (%):
    • 1) Gross Profit, 2) Opeartiong Profit, 3) Pretax Profit, 4) Net Profit.
    • To provide a comprehensive measure (efficiency and performance) of a company's profitability on a historical basis (3-5 years)
    • To detect consistency or positive/negative trend in a company's earnings.
  • Margin Ratios:
    • Gross Profit Margin looks at cost of goods sold as a % of sales, how well a compnay controls its products and inventory, and subsequently pass on the costs to its customers.
    • EBITDA Margin (Cash Flow Margin) measures the ability of a company to translate sale into cash: Cash Flows/Net Sales.; EBITDA has its ueses in some industries, such as bradcasting where deprecialtion charges may routinely overstate tru economic dpreciation.
    • EBIT(Earnings before Interest & Tax)= Ordinary Profit + Interest Paid -Interest Received; useful and widely used measure of a business's income before it is devided among creditors, owners, and the taxman.
      • EBIT is the Operating Profit neglecting Funding Cost.
      • In EBIT: Earnings could be 1) Operatiing profit, 2) Ordinary profit, or 3) Pretax profit. (Difinition is ambiguous.)
    • Net Profit Margin measures profitabiltiy after all expenses including tax, interest, and deprecialtion.;'Bottom line'
  • Inventory turnover:
    • $Inventoyturnover =\frac{CostofGoosSold}{EndingInventory}=( ) Times$
  • Collection Period:
    • $CollectionPeriod = \frac{AccountReceivable}{CreditSalesPerDay}= ( ) Days$

2. 収益性分析:

  • 売上高総利益率=売上総利益/売上高
  • EBITDA Margin=EBITDA/売上高
    • Earnings before Interest, Taxes, Depresciastion & Amortization
  • 売上高営業利益率=営業利益/売上高
  • 売上高経常利益率=経常利益/売上高
  • 売上高税引前利益率=税引前利益/売上高
  • 売上高当期純利益率=当期純利益/売上高

  • EBIT Margin=EBIT/売上高
    • Earnings before Interest & Taxes.
  • NOPAT Margin=NOPAT/売上高
    • Net Operationg Profit after Taxes.
    • NOPAT=営業利益×(1-税率)

>Top 3. Profit and Loss

PL (for year ended 31 Dec., xxxx)

  Sales   売上高 S 収益性分析 Prifitability Analysis
  Cost of Sales   売上原価      
□Gross Profit 売上総利益 A 売上高総利益率 (A/S)
Gross Profit Margin
粗利: <商品力>
  Selling, General, & Administrative cost (SGA)   販売費&一般管理費 B EBITDA Margin (B/S)

EBITDA (Earnings before Interest, Tax, Depreciation & Amortization)

  Depreciation   減価償却費      
□Total operating expenses □販売費&一般管理費合計      
□Operating income 営業利益 C 売上高営業利益率(C/S)

本業: <営業力>

  Other Expenses   営業外費用      
  Nonoperation income   営業外収益
D EBIT Margin (D/S) *EBIT (Earnings before Interest & Tax) (+金利以外営業外損益)
  Interest expenses   支払利息      
□Total nonoperationg expenses □営業外費用合計      
  (Ordinary profit)   (経常利益) E 売上高経常利益率(E/S) 本業: <財務力>

(Extraordinary profit)

  (Extraordinary loss)   (特別損失)評価損減損損失      
□Net income before income tax 税引前当期純利益 F 売上高税引前利益率(F/S) 全活動: <臨時損益込み> Pretax profit
  Provision for income tax   法人税住民税事業税      
      NOPAT G NOPAT Margin (G/S) NOPAT (Net Opertion Profit after Tax)
Net Income 当期純利益 H 売上高当期純利益率(H/S)
Net Profit Margin
手取り: <最終利益>

>Top 4. Breat-Even Point (BEP):

  • Breakeven Point (BEP); is the point at which its sales exactly cover its expenses.
  • Variable cost (V); that are dependent on sales volume (Q), such as the cost of manufacturing of the product.
  • Fixed costs (F): that are independent of sales volue, such as overhead like rent.
  • <Calculation of BEP>
  • Profit = Sales - (VariableCost + FixedCost)→BES equals when profit is zero.
  • $BES = VariableCost + FixedCost$
    $BES - VariableCost = FixedCost$
    $(1- \frac{VariableCost}{BES}) =\frac{FixedCost}{BES}$
    $\therefore \; BES = \frac{FixedCost}{1- VariableCostRatio}$
    where, $ \frac{VariableCost}{BES} = VariableCostRatio$

3. 損益分岐点


>Top 5. Shrinking Profits in Accounting:

  • Abbreviation:
    ProfitperUnit (P), VariableCost (V), GrossProfit (G)
    → SalesQuantity (Q), FixedCost (F), PreTaxProfit (Pt), Tax (T), NetProfit (N)
  • VariableCostRatio = V/P
  • Breakeven Sales (BES): Pr=0; GQ=F
  • Ex: Finding the Breakeven Point (BEP):
    1. AA Corp. calculated that its Fixed costs (rease, depreciation, full-time presonel expenses, property taxes, etc.) added up $60,000.
    2. Their variable costs associated with manufacturing are raw material , factory labor, and sales commissions. Variable costs were $0.80 per unit.
    3. The Product is priced at $2.00 per unit.
    4. Thus: Breakeven Point (BEP) of AA Corp 's product:
      $\frac{60,000}{2.00-0.80}=50,000$ units  [F=GQ]
    5. AA Corp. must sell 50,000 units to attain BEP.
  • How Cutting Costs affect the BEP:
    1. If you cut the Fixed cost from $60,000 to $50,000. The above formula becomes: $\frac{50,000}{2.00-0.80}=41,667$ units
    2. If you reduce the Variable cost from $0.80 to $0.60 per unit, then:
      $\frac{60,000}{2.00-0.60}=42,857$ units

4. 会計における縮小する利益:

  • ProfitperUnit (P): 単位当たり利益
  • VariableCost (V): 単位当たり変動費
  • GrossProfit (G): 単位当たり売上総利益
  • SaleQuantity (Q): 販売数量
  • FixedCost (F): 固定費
  • PreTaxProfit (Pt): 税引前利益
  • Tax (T): 租税公課
  • NetProfit (N): 純利益
  • 7つの利益:
    1. 売上総利益 (Gross Profit): 商品力;
    2. EBITDA (金利税償却前利益):
    3. 営業利益 (Oprerating Profit): 営業力;
    4. EBIT (金利外営業利益);
    5. 経常利益 (Ordinary Profit); 財務力;
    6. 税引前当期純利益 (Pretax Profit); 臨時
    7. 当期純利益 (Net Profit); 最終利益


>Top 6. Why So many definitions of profits?

  • Profits should be defined by the viewpoints of stakeholders:
    1. Gross Profit: which reflects competitiveness of the product from viewpoint of operation divisions.
    2. EBITDA; which reflects direct operation profit considering funds of owner and lenders (particularly after investment)
    3. Operating Profit; which reflect direct operation profict considering funds of owrners only.
    4. EBIT: which reflect ordinary operation profit considering funds of owners and lenders. (→ROA)
    5. Ordinary Profit; which reflect ordinary operation profit of owners only. (→ROE)
    6. Pretax Profit: which reflect ordinary operation profit considering special events of owners.
    7. Net Profit: the final operation profit after paying taxes.

5. なぜ利益の定義が多いのか:

  • ステークホルダの視点の違いによる
    • 売上総利益:
    • EBITDA:
      株主・債権者の資金からの営業力 (投資後の)
    • 営業利益:
    • EBIT:
    • 経常利益:
    • 税引前当期純利益:
    • 当期純利益:
  • In business the roles of front-end and back-end become obvious: the front-end (Sales division as well as Manufacturing division) is responsible to secure Gross Profit, while the back-end (Administrative division) to secure Pretax Profit.
  • In operating a company, there is also internal friction or bargaining among divisions regarading profit, as well as between sellers and buyers, and also between owners and lenders, and even private sector and public sector.
  • フロントエンド部門とバックエンド部門の役割は明確。前者はいかに売上総利益を確保し、後者は以下に税前当期利益を確保するか。
  • 会社を経営する上では、利益を巡って各部署での摩擦や駆け引きがある。それは売り手と買い手、また株主と債権者、そして私企業と政府の間にも存在する。

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