Why Current Profitability Measures Destroy Billions in the Industry

19 Pages Posted: 8 Sep 2005

Date Written: August 29, 2005

Abstract

I have worked for many years as senior consultant and advisor for the majority of European Pulp&Paper companies, the majority of Nordic Packaging and Nuclear companies and other industries, and have found that values corresponding to billions of dollars are destroyed in the industry. Not because market assumptions etc are incorrect - that is one item that always will be uncertain - but because the industry's view on financial performance has consequences that are extremely costly to the shareholders. Examples of costly consequences are:

1. It is difficult to identify where the company should be expanding and where it should improve the current business. The company does not grasp the expansion opportunities it has.

2. The renewal of the business is too slow, low propensity for renewal.

3. Low performance is cemented The reason for this money-wasting is profitability information based on accounting.

Keywords: profitability, EVA, CVA, NPV, investments, decisions, allocation, capital

JEL Classification: G30, G31, L10, L20, L21, L73, M10, M41

Suggested Citation

Weissenrieder, Fredrik, Why Current Profitability Measures Destroy Billions in the Industry (August 29, 2005). Available at SSRN: https://ssrn.com/abstract=794570 or http://dx.doi.org/10.2139/ssrn.794570

Fredrik Weissenrieder (Contact Author)

Weissenrieder & Co AB ( email )

Kungsportsavenyn 34
Göteborg, 411 36
Sweden
+46 702 603690 (Phone)

HOME PAGE: http://https://www.linkedin.com/company/weissenrieder-ab

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