Periodic discount rate and Profit: Difference between pages

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1.  ''Accounting''.
A cost of borrowing - or rate of return - expressed as:


*The excess of the amount at the end over the amount at the start
A surplus arising from the appropriate matching of revenues with expenditure.
*Divided by the amount at the end
<br>For example, operating profit or net profit.




==Example 1==
The profit for a period may differ from the cash flow because of:
GBP 1 million is borrowed.


GBP 1.03 million is repayable at the end of the period.
*Items in cash flow which are not part of profit. For example capital expenditure or the collection of debtors recognised in prior periods; and


*Items in profit which are not cash flows, for example depreciation, amortisation, or making accruals.


The periodic discount rate (d) is:


d = (End amount - start amount) / End amount


''or''
2.


d = (End - Start) / End
More generally any surplus, gain or net benefit arising.




= (1.03 - 1) / 1.03
== See also ==
*[[Accounting]]
*[[Accrual]]
*[[Accruals accounting]]
*[[Amortisation]]
*[[Attributable profit]]
*[[Break-even]]
*[[Capital expenditure]]
*[[Cash]]
*[[Cash balance]]
*[[Cash flow]]
*[[Debtors]]
*[[Depreciation]]
*[[Economic profit]]
*[[Environmental profit and loss]]
*[[Expenditure]]
*[[Expense]]
*[[Gross profit]]
*[[Income statement]]
*[[Loss]]
*[[Net operating profit after tax]]  (NOPAT)
*[[Net profit]]
*[[Net profit margin]]
*[[Normal profit]]
*[[Not-for-profit]]
*[[Operating profit]]
*[[Profit after tax]]
*[[Profit and Loss account]]
*[[Profit and Loss reserve]]
*[[Profit before interest and tax]]  (PBIT)
*[[Profit before tax]]
*[[Profit centre]]
*[[Profit for purpose]]
*[[Profit margin]]
*[[Profit maximisation]]
*[[Profit shifting]]
*[[Profit warning]]
*[[Profitability]]
*[[Return]]
*[[Revenue]]
*[[Statement of profit or loss]]
*[[Supernormal profit]]
*[[Taxable profits]]
*[[Turn]]
*[[Underlying]]
*[[Unrealised profit]]


= 0.029126
[[Category:Accounting,_tax_and_regulation]]
 
= '''2.9126%'''
 
 
==Example 2==
GBP 0.97 million is borrowed or invested
 
GBP 1.00 million is repayable at the end of the period.
 
 
The periodic discount rate (d) is:
 
= (End - Start) / End
 
= (1.00 - 0.97) / 1.00
 
= 0.030000
 
= '''3.0000%'''
 
 
==Example 3==
GBP  0.97 million is borrowed.
 
The periodic discount rate is 3.0000%.
 
Calculate the amount repayable at the end of the period.
 
===Solution===
The periodic discount rate (d) is defined as:
 
d = (End - Start) / End
 
d = (End / End) - (Start / End)
 
d =    1      - (Start / End)
 
 
''Rearranging this relationship:''
 
(Start / End) = 1 - d
 
Start = End x (1 - d)
 
Start / (1 - d) = End
 
End = Start / (1 - d)
 
 
''Substituting the given information into this relationship:''
 
End = GBP 0.97m / (1 - 0.030000)
 
= GBP 0.97m / 0.97
 
= '''GBP 1.00m'''
 
 
==Example 4==
An investment will pay out a single amount of GBP 1.00m at its final maturity after one period.
 
The periodic discount rate is 3.0000%.
 
Calculate the amount invested at the start of the period.
 
===Solution===
As before, the periodic discount rate (d) is defined as:
 
d = (End - Start) / End
 
d = 1 - (Start/ End)
 
 
''Rearranging this relationship:''
 
(Start / End) = 1 - d
 
Start = End x (1 - d)
 
 
''Substitute the given data into this relationship:''
 
Start = GBP 1.00m x (1 - 0.030000)
 
= '''GBP 0.97m'''
 
 
 
==See also==
 
*[[Effective annual rate]]
*[[Certificate in Treasury Fundamentals]]
*[[Certificate in Treasury]]
*[[Discount rate]]
*[[Nominal annual rate]]
*[[Periodic yield]]
*[[Yield]]

Revision as of 11:49, 23 July 2022

1. Accounting.

A surplus arising from the appropriate matching of revenues with expenditure.
For example, operating profit or net profit.


The profit for a period may differ from the cash flow because of:

  • Items in cash flow which are not part of profit. For example capital expenditure or the collection of debtors recognised in prior periods; and
  • Items in profit which are not cash flows, for example depreciation, amortisation, or making accruals.


2.

More generally any surplus, gain or net benefit arising.


See also