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Profitability analysis in UK organizations: an exploratory study

Drury, Colin and Tayles, M. (2006) Profitability analysis in UK organizations: an exploratory study. British accounting review, 38 (4). pp. 405-425. ISSN 0890-8389

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    Recent research into management accounting practices suggests that companies are now placing considerable emphasis
    on profitability analysis and consider it to be one of the most important management accounting practices. There is
    however little recent empirical research relating to the content and role of profitability analysis in companies. This paper
    will address this omission and report the findings derived from a survey of UK companies relating to information that is
    contained in profitability reporting, generated for managing the existing mix of a firm’s activities. In particular, it focuses
    on the nature, content and role of profitability analysis carrying out some exploratory analysis and testing various
    propositions to explain the divergence in observed practices.
    A distinctive feature of the research is that, unlike some previous research, rather than focusing on the information that
    is accumulated within the costing system it focuses primarily on the information that is extracted from it for different
    purposes. Not surprisingly we find that different information is extracted for profitability analysis than for pricing
    purposes. The research findings also indicate that firms use a hierarchy of profit measures within the periodic profitability
    analysis statements and that profitability analysis is used mainly for attention-directing purposes for signalling the need for
    more detailed studies. For profitability analysis, the findings suggest that, in terms of what is considered the most
    important attention-directing measure, the use of some form of full costs based on arbitrary allocations is not as
    widespread as that suggested by previous studies. Evidence is also presented to suggest that the level of cost system
    complexity influences the observed practices.

    Item Type: Article
    Additional Information: UoA 35 (Accounting and Finance) © 2006 Elsevier Ltd. All rights reserved.
    Subjects: H Social Sciences > HF Commerce
    H Social Sciences > HG Finance
    H Social Sciences > HF Commerce > HF5601 Accounting
    Schools: The Business School
    The Business School > Financial Ethics and Governance Research Group
    Related URLs:

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    Depositing User: Sara Taylor
    Date Deposited: 22 Mar 2007
    Last Modified: 28 Jul 2010 19:19


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