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Essay / Research Paper Abstract
This 3 page paper discusses the distortions caused by differing accounting procedures in the profitability ratio. The paper looks at the different profit ratios, such as operating profit, net profit, EBIT and EBITDA and how they can be calculated and manipulated. The bibliography cites 6 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEprofitm.rtf
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Unformatted sample text from the term paper:
be a simple definition, but in reality the definition is a clear as mud. In reality there are several measures of profitability. In accounting terms operating expenses may be
different form common language use, with operating cists being only the direct cost of the production not including many elements such as administration cost, as such this is not a
common measure of profitability (Elliott and Elliott, 2003). The more common measures are the net profit, which is the profit after all costs have been deducted. However, we also have
to consider the way in which this profit figure is reached with different potentials for manipulating the figures to increase or decrease the apparent profit levels. For example, even aspects
such as the way stock is value, such as first in first out, or average value, the way work is progress is estimated and the way leases are treated and
whether research and development of associated acquisition costs are capitalized can manipulate this figure. Even if we assume there are no differences with the way these figures are out
together this is not seen by many as a true measure of efficiency. For example, if a company is very efficient, but has become more highly geared in the short
term to increase long term profits, the payment of interest may give the appearance of a poorer performing company compared to a company where, if the interest was not considered
would be producing a lower level of profit (Watts, 1998). Profit measures used may seek to try and equalise these, the two most popular measures are net profit as well
as the EBIT, which stands for earnings before interest and tax and the EBITDA which is the earnings before interest and tax depreciation and amortisation. The difficult is that these
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