Bridge over ocean
1 March 1983 Financial Analysts Journal Volume 39, Issue 2

Current Cost Profitability of British and American Industry

  1. A. Peter Thompson

Although both American and British companies publish current cost data, the figures are not directly comparable. Differences in accounting standards make it difficult to compare individual companies, but it is possible to make broad-brush comparisons of aggregate profitability. These show that, as a result of the gearing adjustment, the British accounting standard is more generous than the American. On a comparable basis, the profitability of British companies is lower than that of American companies in aggregate. Furthermore, if allowance is made for the different types of companies in the private sectors of the two countries (especially the fact that many of the less profitable sectors in Britain have been nationalized), current cost profitability of British companies is frequently less than half that of comparable American companies.

This article calculates current cost profitability for British companies, in aggregate and by industry sector, on the basis of the British standard SSAP 16 and the American standard FASB 33. These give remarkably different results. Which, if either, gives the “true and fair” profit?

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