DFS - Confusion over net profit figure to be used!
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Yet again this appeared on the exam paper this morning with no explanation of which net profit figure we were supposed to use. In the real world - not AAT world - most us call net profit the figure BEFORE interest and tax however AAT confuse this by stating it is technically profit AFTER interest but before tax...
Osborne even acknowledege this common misinterpretation between profit from ops and net profit on page 204 of the DFS tutorial.
The exam didn't define which one we were supposed to use so I think an allowance should be made for this when marking.
Anyone else notice this?
Robert
Osborne even acknowledege this common misinterpretation between profit from ops and net profit on page 204 of the DFS tutorial.
The exam didn't define which one we were supposed to use so I think an allowance should be made for this when marking.
Anyone else notice this?
Robert
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Comments
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Re:DFS - Confusion over net profit figure to be used!
Hello
I used operating profit.
I was told that Net profit percentage should always be calculated using profit before interest and tax.
Yas0 -
Re:DFS - Confusion over net profit figure to be used!
Profit ratios are calculated on profit before interest and tax i think.0 -
Re:DFS - Confusion over net profit figure to be used!
I forget now but I think it was always advised to use profit from operations in a net profit calculation because of the interest costs?
Since generally you're using the net profit percentage in comparison with other companies who perhaps do not have the same interest costs. This is to make the calculation more "like for like".
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Re:DFS - Confusion over net profit figure to be used!
Well I used Profit after interest but before tax since this is defined at the top of page 204 as the "true" net profit. However, also according to the book we can use either but probably should use PBIT which doesn't help since it's supposedly the "false" one!
I don't really think it's good enough that this consistently appears in exams yet the AAT don't clarify it by adding a sub note to the question.
Robert0 -
Re:DFS - Confusion over net profit figure to be used!
To be fair net profit has always been the last figure on the income statement. Perhaps the AAT leave this as it is to test your knowledge?
You would never compare the net profit (after interest & tax) for two companies unless you knew how each company operated. Since you'll never really find this out profit from operations will always give the more meaningful figure.
When I took DFS you had to calculate the net profit percentage and then comment on it which makes sense as a test of knowledge.0