Procyclicality and Profit: Difference between pages

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imported>Doug Williamson
(Create page. Sources: linked pages and BIS Review 94/2009)
 
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''Bank supervision - capital adequacy - leverage.''
1. ''Accounting''


The tendency of financial systems to amplify fluctuations in the economic cycle.
A surplus arising from the appropriate matching of revenues with expenditure.
<br>For example, operating profit or net profit.




:<span style="color:#4B0082">'''''Interaction and amplification'''''</span>
The profit for a period may differ from the cash flow because of:


:"Herd behaviour has long been known to be an essential feature of financial markets.  
*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.


:More subtly, individual reactions, by themselves rational, can, by the virtue of their mutual interaction, produce strong amplification effects.




:A broader definition of procyclicality would thus encompass three components, which cannot easily be distinguished in real life:
2.
 
::(1) fluctuations around the trend
 
::(2) changes in the trend itself and
 
::(3) possible cumulative deviations from equilibrium value.  
 
 
:This points to the policy challenges regulators face.
 
:They have to try and identify when pure cyclical fluctuations morph into something different: either a change in the trend itself or the start of a cumulative process."
 
 
:''Jean-Pierre Landau, Deputy Governor of the Bank of France, BIS Review 94/2009.''


More generally any surplus, gain or net benefit arising.




== See also ==
== See also ==
* [[Capital adequacy]]
*[[Accrual]]
* [[Countercyclical]]
*[[Amortisation]]
* [[Cyclical]]
*[[Attributable profit]]
* [[Herd behaviour]]
*[[Break-even]]
* [[Leverage]]
*[[Business]]
* [[Procyclical]]
*[[Capital expenditure]]
* [[Prudential]]
*[[Cash flow]]
* [[Total Loss Absorbing Capacity]]
*[[Debtors]]
*[[Depreciation]]
*[[Gross profit]]
*[[Loss]]
*[[Net profit]]
*[[Net profit margin]]
*[[Not-for-profit]]
*[[Operating profit]]
*[[Profit and Loss account]]
*[[Profit and Loss reserve]]
*[[Profit margin]]
*[[Profit maximisation]]
*[[Profit warning]]
*[[Profitability]]
*[[Recognition]]
*[[Turn]]
*[[Underlying]]
*[[Unrealised profit]]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Accounting,_tax_and_regulation]]
[[Category:The_business_context]]
[[Category:Investment]]
[[Category:Long_term_funding]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]
[[Category:Financial_products_and_markets]]

Revision as of 12:06, 24 December 2020

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