Collapse Subdiscussion Tanisha Taylor Tanisha Taylor XXXXXXXXXXTuesday Jan 14 at 8:29pm Close inspection of financial metrics important in business can help decision-makers readily identify issues...

Tanisha Taylor

Close inspection of financial metrics important in business can help decision-makers readily identify issues with expenses or pricing (Biery, 2013). Understanding financial metrics and how they compare against competitors gives decision-makers a more definite sense of strengths and weaknesses (Biery, 2013). Pre-tax net profit margin is one of those key financial metrics that helps with understanding the business and competitors (Biery, 2013). The planned net income is the anticipated net income once the original plan is set on a pre-tax basis (Cadrain, 2017). The after-tax net income is based on the tax rate and gives the profit kept per dollar of sales, demonstrating how effective the business is being run regarding expenses (Cadrain, 2017). The pre-tax net profit margin measures performance of the business prior to the incorporation of taxes (Biery, 2013).

According to Mathur, seventy percent of businesses paid nothing in corporate taxes as they had no profits; this depends on how
pre-tax income
and
profitable
are defined (Mathur, 2016). The reason why seventy percent of businesses are not paying taxes is that they are not profitable or can offset taxes due to prior year losses (2016). It is important to Itemize deductions as the year progresses in order to avoid unnecessary taxes (Mathur, 2016). Pricing strategies are also key to increasing the pre-tax net profit margin (TriCorp Simulation, 2016). When expenses exceed revenues, the strategy must be revisited (Biery, 2013). Profitability demonstrates an efficiently run business (Biery, 2013). Companies are weighted against one another for investment purposes, and being able to show profitability and look financially healthy is important for growth purposes (Mathur, 2016).

From the standpoint of the simulation, knowing where the business is heading is clarified to ensure that the business remains on target, especially as it pertains to net income (TriCorp Simulation, 2016). It is important to learn how to adjust expenses in subsequent quarters to stay on track with strategic objectives as well as financial metrics (Cadrain, 2017). Projections must fall within the actual plan from quarter to quarter (TriCorp Simulation, 2016). It has been a challenge trying to juggle all the expectations as well as various threats, ensuring that strategic goals are being met (2016).

References:

Biery, M. E. (2013, September 1). How healthy is your business? 6 ways to take its ‘temperature.’ (Links to an external site.) Forbes. Retrieved from https://www.forbes.com/sites/sageworks/2013/09/01/how-healthy-is-your-business-using-industry-data-to-check-the-temperature/#26ca43e1704a

Cadrain, S. (2017). Pre-Tax Net Income Chart Explanation Preview the document[Presentation Slides]. Retrieved from https://ashford.instructure.com

Mathur, A. (2016, April 20). Why 70% of companies paid zero in corporate taxes: they had zero profits (Links to an external site.). Forbes. Retrieved from https://www.forbes.com/sites/aparnamathur/2016/04/20/why-70-of-companies-paid-zero-in-corporate-taxes-they-had-zero-profits/#7a02689c56e3

TriCorp Simulation (2016). Growing your business - A management simulation. Retrieved from https://ashford.trisimulation.com/Simulation

Collapse Subdiscussion

Daniel Quale

Daniel Quale

Hi Tanisha. Great post.

I agree that financial metrics need to be monitored by companies to understand their performance (Biery, 2013). Financial metrics, such as the current ratio, accounts payable days, and others, are crucial data points to understand expenses and pricing. I also learned from your post that it is vital to compare these financial metrics against the company's competitors. This comparison gives the company a clearer understanding of its strengths and weaknesses within the market versus the other companies, and they need to improve based on customer's wants and needs. For example, pricing, quality, customer experience (CX), and other product and service attributes.

This is also the case with pre-tax net income. While many metrics can tell stakeholders essential things about the business, the pre-tax net profit margin may be the most important because it provides how much profit the company gets to keep from each dollar of sales (Biery, 2013). Some private companies will divide the net profit before taxes by sales to take its temperature. This measures the company's management performance regarding how effectively they are investing capital, utilizing assets, and manage expenses, and producing revenue (Schneider, 2017). I also learned from reading your post that the net operating loss deduction or NOLD corporate tax deduction allows a company that has a profitable net income to deduct a prior year’s operating loss to offset the taxable income of a productive year and thereby not having to pay taxes on a successful year (Mathur, 2016).

References

Biery, M. E. (2013, September 1). How healthy is your business? 6 ways to take its ‘temperature.’Forbes. Retrieved from https://www.forbes.com/sites/sageworks/2013/09/01/how-healthy-is-your-business-using-industry-data-to-check-the-temperature/#26ca43e1704a

Mathur, A. (2016, April 20). Why 70% of companies paid zero in corporate taxes: they had zero profits.Forbes. Retrieved from https://www.forbes.com/sites/aparnamathur/2016/04/20/why-70-of-companies-paid-zero-in-corporate-taxes-they-had-zero-profits/#7a02689c56e3

Schneider, A. (2017). Managerial Accounting: Decision making for the service and manufacturing sectors(2nd ed.) [Electronic version]. Retrieved from https://content.ashford.edu/