Book contents
- Frontmatter
- Dedication
- Contents
- List of Tables
- List of Figures
- Preface
- 1 Introduction
- Part I Productivity and Profitability
- Part II Productivity and Profit
- 4 Profit Change: Its Generation and Distribution
- 5 Decomposing the Quantity Change and Price Change Components of Profit Change
- 6 Decomposing the Productivity Change Component of Profit Change
- Part III Productivity, Cost, and Return on Assets
- Bibliography
- Author Index
- Subject Index
4 - Profit Change: Its Generation and Distribution
Published online by Cambridge University Press: 05 January 2015
- Frontmatter
- Dedication
- Contents
- List of Tables
- List of Figures
- Preface
- 1 Introduction
- Part I Productivity and Profitability
- Part II Productivity and Profit
- 4 Profit Change: Its Generation and Distribution
- 5 Decomposing the Quantity Change and Price Change Components of Profit Change
- 6 Decomposing the Productivity Change Component of Profit Change
- Part III Productivity, Cost, and Return on Assets
- Bibliography
- Author Index
- Subject Index
Summary
Introduction
Our objective in this chapter is to initiate a decomposition of profit change analogous to the decomposition of profitability change we initiated in Chapter 2. This chapter shares a core objective with Chapter 2, a desire to analyze the generation of change in business financial performance and an equally strong desire to analyze the distribution of the financial impacts of business growth or contraction. However, there are two major differences between the ratio analysis of profitability change in Chapters 2 and 3 and the difference analysis of profit change initiated in this chapter and continuing through Chapters 5 and 6. First, and obviously, business financial performance is assessed with different measuring rods. In Chapters 2 and 3, profitability change and its components were expressed as ratios, as pure numbers, while in Chapters 4 to 6 profit change and its components are expressed as differences, in monetary units. Second, and not at all obviously, the decomposition of profit change is more informative than the decomposition of profitability change, since there can be as many as four identifiable components of profit change, two relating to changes in quantities and two relating to changes in prices. Changes in quantities are not necessarily attributable entirely to productivity change, and changes in prices are not necessarily attributable exclusively to price recovery change. We provide a brief insight into the richness of the decomposition of profit change in Section 4.5, although we defer a thorough analysis of the decomposition to Chapter 5.
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- Productivity AccountingThe Economics of Business Performance, pp. 159 - 201Publisher: Cambridge University PressPrint publication year: 2015