Chapter 4 Calculating Breakeven and After-Tax Profit

How do you know whether you are profiting from the use of money? A manager who does not accurately summarize profit and loss can easily fall into a reporting trap: If profits have been earned when, in fact, a net loss has taken place.

This occurs when you overlook the effects of hidden costs, inflation, and taxes. These all affect your estimate of profits; when considered collectively, they can be significant. To accurately estimate profits, you need to develop reliable methods for estimating hidden costs, inflation and tax consequences. These are part of any financial summary or cash flow analysis. The profitability of any activity relies on the accuracy of these estimates.

Hidden Costs

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