The Economic Analysis of Accounting Profitability

A thorough study of the economic analysis of the principles of accounting. The authors propose a number of questions for which appropriately constructed accounting data can give precise answers - for example whether there should be entry to, or exit from, an industry by a firm, or whether a particular project should be undertaken or not. It highlights the importance of thinking clearly about the questions which are being answered with the use of accounting data, and shows how accounts should be constructed in order to answer these questions. Analyses of the precise corrections required for the appropriate way to adjust accounts for inflation, and the appropriate treatment of deferred taxation in accounts are provided. The authors deal with difficult concepts in such a way as to make that their treatment accessible to a wide audience.