NIPA a Model for Net Income and Productivity Analysis

Abstract

A firm’s performance can be measured in many ways. The traditional financial analyses commonly measure performance in terms of ratios of certain accounting data contained in the income statement and the balance sheet. The key result management is most interested in is growth in earnings. Thus, it would be very helpful to know more about the factors which underlie that growth and to be able to quantify the impact of those factors on earnings. Conventional accounting measures provide a good deal of such information. However, the income statement data on sales, costs, and profits include the effect of price changes as well as changes in physical volumes over time. Moreover, many of the balance sheet accounting measures are composites of real volumes and price changes over time and do not necessarily reflect current economic relationships. The conventional financial measures, therefore, could mask a decline in efficiency of the enterprise or fail to provide correct indications of improvements that might be taking place.