Basis for Better Business Administration and Management

Within business economics, a lot is currently badly taught worldwide by Business Schools and it entails the danger that wrong policy decisions will be taken by companies.

This article presents 8 main items about this subject:

1. NPV (Net Present Value) and IRR (Internal Rate of Return)
2. Criticism of all depreciation methods in literature
3. ‘Ideal complex’ is not ideal
4. Economic Life Cycle_Determined SUC is currently set too low
5. Divergent AC and DC calculations
6. Budgeting and Budgetary Control
7. Statement of Source and Use of Funds
8. Period Profit Measurement, exactly, quickly and easily

1. NPV (Net Present Value) and IRR (Internal Rate of Return): Discussion about which is better, NPV or IRR, wrongly seen as two different investment selection methods, is irrelevant, because understanding the behavior of the underlying polynomial y = f (x), that is fundamentally necessary, and simultaneously to both outcomes, NPV and IRR. The NPV / IRR method does not take into account any necessary backlog depreciation; the investment is only settled on the basis of the historical cost price. The method can select in the negative sense but usually not positive. Do NOT do it, i.e. declare a project UNacceptable, that is possible with NPV / IRR as has been argued. But to prioritize two or more acceptable projects is usually not possible with NPV / IRR. The separate consideration of only investments is hardly worthwhile, because it forms part of the trinity:

   TO INVEST, DEPRECIATION, PROFIT MEASUREMENT

2. Criticism about all depreciation methods in the literature
   – They are not flexible
   – Extra exercises are sometimes required (f.i. backlog depreciation)
   – The way of financing is often not taken into account.
   The rigid depreciation methods in the literature do not follow the actual values; they only present artificial figures. They are unreliable, because they are not only determined by the chosen method, but they depend on a supposed life cycle for each method.
3. ‘Ideal complex’ is not ideal
   ‘Ideal complex’ is for each complex of resources where the age structure is such that the number of working-units put out of service each year is exactly the same as the annually purchased number of new working-units. Only at 100 % equity no backlog depreciations; that can be called ideal, but unfortunately it hardly ever applies. In any other financial structure, the depreciations have to be determined exactly, taking into account that particular financial structure. Then there is nothing what is obvious. Almost always with a so-called ideal complex the depreciations (all value differences) have to be calculated precisely.
4. Economic Life Cycle_Determined SUC is currently set too low
   Standard prices of the working-units of tangible fixed assets are, amongst other quantities, required input data in order to establish minimum product prices. However, this important data is not calculated exactly – if calculated in conformity with the best textbooks in use worldwide – it is consistently too low. The calculation of the economic life cycle to date must be followed by the NEW algorithm presented in ISBN 9781086355635 by Jan Jacobs, available at Amazon. Here the content of the book is given.
5. Divergent AC and DC calculations
   There is an easy to learn formula. Just one formula. For both AC and DC. And for everything that one can think off around breakeven analysis and iso profit lines. Many textbooks present a variety of DC and AC calculations. For DC and AC, one simple calculation scheme is sufficient, a single formula and then easy to make illustrative drawings.
6. Budgeting and Budgetary Control
   No Greek word has been used in fully elaborations in ISBN 9781086355635 and although factual formulas have indeed been used, everything is automatically drawn up along the lines of logic so that everyone can also understand the analysis made. There is no need for difference analysis rather just common sense. Remember, every analysis must be clear and transparent. If not complete, it entails the danger that wrong policy decisions will be taken.
7. Statement of Source and Use of Funds
   It is about clearly showing the flows of money. Money flows are all too often NOT clearly shown. Sometimes it seems as if one wants to hide the money flows from view. Do not let yourself be swindled. Every penny must come from somewhere and must also stay somewhere. There are IN money flows and there are OUT money flows. They all have to be clearly displayed, under appropriate ‘titles’.
8. Period Profit Measurement, exactly, quickly and easily
   Profit determination is one of the main subjects in the field of business economics. The problem of determining the period profit of a company is regarded as such truly comprehensive, it is deemed insoluble. A solution would not exist.
   “Perhaps the search for an ideal accounting system should be likened to the search for the philosopher’s stone or the elixir of life (Whittington, 1983, p. ix).” Profit determination, is that possible? Yes! WORLD NEWS! The adage ‘profit is an opinion’ is no longer true. Everybody can measure period profit. Just see how complicated the elaborations are through the old ways, and how wonderfully simple with the help of The Profit Formula®. Simplicity is indeed often the hallmark of truth. All profit calculation systems known so far generate a lot of work. If one uses The Profit Formula® regarding all values and standards one can quickly and easily calculate any profit. Using this method measuring profit is ‘a piece of cake’.

On YouTube, search for: The Way to Easy Profit Measurement_2 EXAMPLES (fully elaborated).

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