Profit comparison calculation

Definition of profit comparison calculation

Profit comparison calculation is a static method of investment calculation that can still be used in practice if the investment alternatives to be compared go beyond the costs (Cost comparison calculation) Revenues of varying amounts are expected. This can be due, for example, to different capacities, which can lead to different production and sales volumes, or to different product quality, which is reflected in different sales prices.

The decision criterion is either the expected (average) project profit or contribution margin per (comparison) period. With the exception of the inclusion of the revenues, the same application restrictions apply as for the cost comparison.

 static investment calculation

The profit comparison calculation is a static investment calculation that represents an extension of the cost comparison calculation by including the income. In practice, these can vary. There are both qualitative and quantitative reasons for this.

Advantageousness

By including them, the advantageousness of the investments can be assessed better than with the cost comparison calculation. After all, no matter how inexpensive an investment object may be, it does not necessarily have to have generated a profit.

In profit comparison calculations, profit is understood to be the difference between costs and income.

Assessment of profit comparison

The profit comparison can be used to assess:

  • The advantages of an individual investment object, which is given when the profit is greater than or equal to zero.
  • The advantageousness of alternative investment objects, whereby the investment object is the more advantageous, which achieves the greater profit.
  • The advantages of replacing an old investment object with a new investment object.
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