Analysis of a Company’s Capacity to Produce Profit under Inflation Conditions

Constantin Caruntu and Mihaela Loredana Lapadusi
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Mihaela Loredana Lapadusi: Constantin Brancusi University, Faculty of Economics, Romania

Annals - Economy Series, 2010, vol. 3, 39-50

Abstract: The priority given to prices stability should be a fundamental objective of the monetary policy towards promoting a sustainable economic growth, to the extent in which it does not damage the fulfilment of its fundamental objective. The classic patterns of analyzing dynamic rates of return (between accounting periods) met in the specialized literature are built by leaving aside the inflation, and results cannot be compared. The information of the profit and loss account is reported at the date when sales and expenses are made. For a better understanding, I will present IAS 29 “Current cost financial statements”, par. 30 “Global income statement” according to which: the statement of the global income to the current cost, before retreatment, generally reports current costs at the date the transactions or events generating them occur. The cost of sales and depreciation are recorded at current cost at the time of consumption; sales and expenses are recorded at current costs at the time of consumption; sales and expenses are recorded at money value at that time. This is why all values should be retreated in the unit of measurement existing at the end of the reporting period, using a general price index. I will present next the methods to analyze sales related profit and the rates of return under conditions of inflation, using present values as compared to rated values.

Keywords: inflation; current cost; incomes; profit; commercial profitability; economic profitability; financial profitability (search for similar items in EconPapers)
Date: 2010
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