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effect of inflation on profit

This causes punitive interest rates on loans as investors seek a return on their investments.

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Is inflation ever good? and you may need to create a new Wiley Online Library account.Enter your email address below and we will send you your usernameIf the address matches an existing account you will receive an email with instructions to retrieve your username Inflation can occur when prices rise due to increases in production costs, such … This will eventually lead to higher rewards for factors of production as well i.e. Most companies in this situation use currency hedging to protect against adverse currency fluctuations.Historical Inflation Rates for Japan (1971 to 2014) J. McB.Grant. Here are 10 things you should know about how it works. Financial Accounting information is provided to external investors and to Management. LTD., Along Ebonyi State University, Nigeria

This happens even when the inflation rate is low, but when it’s high, this phenomenon is even more pronounced.In addition, inflation gives businesses an opportunity to reduce the cost of employee wages.

Higher interest rates provide more opportunity (spread) for banks to build in a profit margin.
Search for more papers by this author. The study concludes that there is now more than ever, the need for inflation accounting in reported profits; the effect of generally accepted conventions on reported profits create a degree of diversity which is at variance with the objective of efficient resource allocation.

He does not know how much his particular costs—for equipment, raw mate­rials, and labor—are going to rise relative to all other prices in the economy, or whether or not he will be able to raise his own prices cor­respondingly. But, if inflation is 2%, it is easier to have pay freezes and effective real wage cuts for unproductive workers. This lack of borrowing power will reduce the liquidity of many enterprises who rely on credit to fund inventory or operations, and may lead to insolvency, or reduce the ability of businesses to invest in growth. PROJECT TOPIC- EXAMINING THE EFFECTS OF INFLATION ON REPORTED PROFITS: IMPLICATIONS FOR DECISION MAKING. Consequently, the accounting conventions and inflationary rate impact negatively on investment decisions by external investors of the banks. Since investors haven't seen inflation or significant price rises in years, it's worth brushing up on the most common effects of inflation. In the highly inflationary 1970’s rising inventory costs led many U.S. companies to adopt the Japanese model of JIT allows companies to stock less inventory, thus saving on carrying costs but even the most prudent If businesses can’t predict their costs in advance and so they also don’t know how much they will have to charge, they spend more and more printing and reprinting items.

THE EFFECT OF INFLATION ON COMPANY PROFITS and FINANCIAL STRUCTURES 1. Inflation has an effect on lending and borrowing.

Additional expenditure is generated with the effect that given full employment, prices of goods and services rises.

Other constraints which the researcher encountered in the course of conducting the study included money, time, distances traveled to obtain information, researchable topic and the unwilling co-operation of respondents.

J. McB.Grant.
To the researcher, this study will add to his knowledge base in the subject area of the effect of inflation on reported profit and its implication for decision making.

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