Doppegie e , J. J.; Lamb ech s, I. J.
A icle
The analysis o p ice o mula di e ences
Sou h A ican Jou nal o Business Managemen
P o ided in Coope a ion wi h:
Uni e si y o S ellenbosch Business School (USB), Bell ille, Sou h A ica
Sugges ed Ci a ion: Doppegie e , J. J.; Lamb ech s, I. J. (1985) : The analysis o p ice o mula
di e ences, Sou h A ican Jou nal o Business Managemen , ISSN 2078-5976, A ican Online
Scien i ic In o ma ion Sys ems (AOSIS), Cape Town, Vol. 16, Iss. 3, pp. 125-127,
h ps://doi.o g/10.4102/sajbm. 16i3.1085
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/217900
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The
analysis
o
p ice
o mula
cli
e ences
J.J.
Doppegie e
and
I.J.
Lamb ech s
Depa e nen Bed y sekono nie, Uni e si ei
an
S ellenbosch, S ellenbosch
In his a icle, he hi d
in
a se ies o ou , accen
has
been
placed on a dynamic analysis
o
di e ences
be ween
he
wo p ice o mulae in oduced
and
discussed
in
he i s
a icle. Fou di e en o mulae componen s
we e
analysed
by
compa ing he esul ing inc emen al changes o he
in e nal a es
o
e u n o he wo p ice o mulae. I
appea ed ha he subs an ial di e ences be ween he
in e nal a es o e u n o he wo o mulae, iden i ied
in
he
p e ious a icle,
a e
mainly a unc ion o wo o mulae
componen s,
i.e.
he alua ion me hod o ixed
asse s
and
he p o i abili y
a e
allowed.
The
me hod o analysis,
p esen ed
in
his a icle, could
be
a meaning ul
means
o
analysing al e na i e o mula componen s
and
selec ing
and
de ining a iable inancial policy.
S.
A .
J.
Bus. Mgm .
1985,
16:
125-127
In
hie die a ikel, die de de
in
'n
eeks
an
ie ,
is die
klem
geplaas op 'n dinamiese analise
an
e skille ussen die
wee o mules wa in die ee s e a ikel bekendgcs el
en
besp eek is. Vie e skillende o mulekomponen e is
onde soek deu die ge olglike ink emen ele e ande ings
in
die in eme en abili ei e
an
die wee o mules e e gelyk.
Di he geblyk da die aansienlike e skille ussen die
in e ne en abili ei e
an
die wee o mulas, soos
gei"den i isee in die o ige a ikel, hoo saaklik 'n unksie is
an
wee o mulekomponen e, naamlik die
waa dasieme ode
an
die as e ba es
en
die oegela e en abili ei .
Die
me ode
an
on leding wa
in
hie die a ikel oegepas is,
kan
be ekenis ol wees in die on leding
an
al e na iewe
o mulekomponen e
en
die seleksie
an
'n op imale inan-
si~le beleid.
5.-A . Tydsk . Bed y sl.
1985,
16:
125-127
J.J.
Doppegie e *
en
I.J.
Lamb ech s
Depa emen Bed y sekonomie, Uni e si ei an S ellenbosch,
S ellenbosch, 7600 Republiek an Suid-A ika
*To whom co espondence should
be
add essed
Accep ed
Janua y
198S
In oduc ion
This a icle, he hi d in a
se ies
o
ou , p esen s a
mo e
meaning ul
me hod
o
analysing
p ice
onnulae han me hods
p esen ly
in
use.
In
an
analysis
o
en
p ice
onnulae
as
applied
in e ms
o
he P ice Con ol Ac ,
i
was
shown ha he
onnulae conce ned di e ed o i ually
e e y
p oduc /
se ice
(see
he
i s
a icle
in
his se ies). I
was
shown ha
he o mulae ook in o conside a ion a a ie y
o
di e en
s ipula ions
such
as
me hods
o
alua ion, allowances and
a ios,
wi h
he esul ha
i
is
di icul o oompa e he
inancial
consequences
o
each.
Using
con en ional and/o in ui i e me hods
o
analysis,
i
is
di icul o
ge
a meaning ul indica ion
o
he inancial
e ec
o
implemen ing di e en onnula p esc ip ions on he
sho and
long- e m
oompany
e u n.
The e
a e
se e al
easons
o his. Fi s ly, con en ional me hods a e
based
on c i e ia
(such
as
he accoun ing a e
o
e u n)
which
ha e
a numbe
o
sho co~.
Secondly,
oon en ional
and
in ui i e
me hods
a e no su icien ly
in
une wi h he complica ed inancial
na u e and he dynamic in e ela ions
o
especially
la ge
unde akings.
Hence, he pu pose
o
his a icle
is
o p esen a mo e
meaning ul me hod
o
analysis.
Me hod
The basic me hod
o
analysis will be demons a ed by using
da a ob ained by implemen ing ou di e en o mula p e-
sc ip ions in he compu e
model
desc ibed
in he i s a icle.
The da a
we e
analysed
by
compa ing he inc emen al di -
e ences
in
he in e nal a e
o
e u n
o
he companies
in ol ed.
In
he
i s
a icle
ou
di e ences
be ween
o mulae A and
B
we e
iden i ied
in e
alia
in
esped o :
(i)
The alua ion me hod
o
ixed
~
(ii) The p o i on addi ional cash
allowed
(iii) The p o i abili y a e
allowed
(i )
The calcula ion
o
he addi ional dep ecia ion.
Table
1 A compa ison
o
he in e nal a es
o
e u n
(i. . .)
o
companies A and B
Yea s
s 10
IS
20
I. . .: A 17,7 17,8 16,9 17,0 17,2
l. . .: B 36,6 36,9 37,0 37,1 37,I
%
Di e ence
8-A
106,8
107,3
118,9
118,2
IIS,1
=--
A
126
Since he o emos explana ion o he signi ican
di
e-
ences in he in e nal a es
o
e u n
o
companies A
and
B
( able
I)
is
he a ia ions be ween o mulae A
and
B, he
pe cen age di e ences mus be mainly he esul
o
he ou
di e en o mula p esc ip ions.
Resul s
o
he
esea ch
In Table 2 he ou di e en p esc ip ions, o igina ing
om
o mula B,
and
hei e ec
on
he in e nal a e
o
e u n
o
company A ( hey ha e been applied
o
model A) a e shown.
In
he emainde
o
his a icle he
da a
on
each p esc ip ion
will be illus a ed
and
discussed b ie ly.
The
pe cen ages in
Table 2 a e no di ec ly compa able
o
hose in Table 1
because all he di e ences in he o mulae
a e
no analysed.
Table
2 The e ec
o
he
ou
di e en p esc ip ions,
o igina ing om o mula
B,
on he in e nal a e
o
e u n
o
company A
Changed p esc ip ion
The me hod
o
alua ion
o
ixed asse s
Exclusion
o
p o i on addi ional
cash allowed
The p o i abili y a e allowed
The calcula ion
o
addi ional
dep ecia ion
"lo
Change l. . .
Company A in yea :
5
10
15
20
71,2
(IJ,7
58,0
53,5
50,6
-4,5
-2,2 -2,4 -2,4
-2,3
79,I 41,8 43,8 42,9 41,9
0,6
1,7
3,6 4,7 4,7
Changing he me hod
o
alua ion
o
ixed asse s
In company A he ixed asse s a e alued a his o ical cos
whe eas he new p esc ip ion, o igina ing om o mula B,
p o ides o he alua ion
o
ixed asse s
a
eplacemen cos .
The
implemen a ion
o
his o mula p esc ip ion has a
posi i e e ec
on
he in e nal a e
o
e u n
o
company A.
The
in e nal a e
o
e u n inc eases by
71,20/o
in yea
1,
whe eas he pe cen age inc ease dec eases as a unc ion
o
ime, declining
o
50,60/o
in yea 20 (see Figu e
1).
The
new alua ion me hod has a signi ican e ec
on
he
in e nal a e
o
e u n
o
company
A.
The
new p esc ip ion
explains nea ly
hal
o
he di e ence be ween he wo com-
panies' o iginal in e nal a es
o
e u n (see Tables 1
and
2).
Figu e 1 shows
ha ,
owing
o
he new
me hod
o
alua ion,
he in e nal a e
o
e u n
is
a i s maximum in he ea ly yea s,
32
31
30
29
28
27
26
25
..:
24
~
23
~
0
22
21
20
19
18
17
16
15
14
1 3 5 7 9
11
13
15
17
19
Yea s
D Ini ial l. . . -l. . . a e change
Flp e 1
The
e ec
o
changing
he alua ion me hod
o
ixed
asse s
on he in e nal a e
o
e u n (i. . .)
o
company A.
S.-A .
Tydsk . Bed y sl.
1985,
16(3)
a e
which i dec eases g adually.
The
explana ion o he signi ican inc ease
in
e u n
is
clea .
Unlike he o iginal alua ion me hod, alua ion a eplacemen
alue p o ides, especially in imes
o
highe in la ion
(p e-
sumed he e
o
be 14%), o a highe alua ion
o
ixed~
and
consequen ly a highe income
and
cash low.
Income on addi ional cash
In con as wi h
o mula
A,
o mula
B does no include a
p o ision o income
on
addi ional cash.
The
exclusion
o
his p esc ip ion o company A has a
small nega i e e ec
on
he in e nal a e
o
e u n. Howe e ,
Figu e 2 shows
ha
he nega i e e ec dec eases in ime
om
-
4,50/o
in yea I
o
-
2,30/o
in yea 20.
32
31
30
29
28
27
26
25
..:
24
-:
23
'$.
22
21
20
19
18
17
16
15
14
3 5 7 9
11
13 15
17
19
Yea s
D Ini ial l. . . -l. . . a e change
Figu e
2
The
e ec
o
excluding income on addi ional cash
allowed
on he in e nal a e
o
e u n (i. . .)
o
company A.
The p o i abili y a e allowed
The
p o i abili y a e p esc ibed in
o mula
A
is
150/o
on
a
be o e- ax basis
compa ed
wi h
150/o
on
an
a e - ax basis
in
o mula
B.
The
150/o
a e
ax co esponds
o
abou
280/o
be o e ax wi h a ax a e
o
460/o.
The
implemen a ion
o
a p o i abili y a e
on
an
a e - ax
basis has a s ong posi i e e ec
on
he in e nal a e
o
e u n
o
company
A.
In
yea 1 he in e nal a e
o
e u n inc eases
by 79, 1
070.
O e ime, howe e ,
he
inc ease diminishes,
32
31
30
29
28
27
26
25
..:
24
j
23
'$.
22
21
20
19
18
17
16
15
14
3 5 7 9
11
13 15 17
19
Yea s
D Ini ial l. . . -l. . . a e change
Figu e 3 The e ec
o
implemen ing he p o i abili y a e on an a e -
ax basis on he in e nal a e
o
e u n (i. . .)
o
company
A.
S.
A .
J.
Bus. Mgm .
198S,
16(3)
becoming
41,90/o
in
yea
20
(see
Figu e
3).
The
new
p o i abili y a e egula ion appea s
o
ha e
a
d ama ic e ec on he in e nal a e
o
e u n o company A.
The eason o his
is
ob ious. The
highe
p o i abili y a e
allowed p o ides o a highe 'base e u n allowed', an
im-
p o ed cash
low
and, ul ima ely, a highe e u n.
Inclusion o a ax adjus men o addi ional
dep ecia ion
Fo mula 8 o e s a ax p o ision
in
espec
o
addi ional
dep ecia ion o p o ide o he
non-deduc ibili y
o
addi ional
dep ecia ion,
which
is
no ound
in
o mula
A.
Implemen ing he ax adjus men
in
he
model
o
company
A has a posi i e e ec on he in e nal a e o e u n
o
ha
company. The in e nal a e
o
e u n
inc eases
by
be ween
0,60/o
in
yea I and
4,
70/o
in
yea
20
(see
Figu e
4).
I
is
clea ha including a
ax
adjus men
o
addi ional
dep ecia ion should ha e a
posi i e
e ec
on
he in e nal a e
o
e u n
since
addi ional cash
low
would
be
gene a ed.
The
32
31
30
29
28
27
26
25
..:
24
..:
23
;;.
22
21
20
19
18
17
16
15
14
1 3 5 7 9
11
13
15 17
19
Yea s
D Ini ial l. . . -l. . . a e change
Figu e 4 The e ec
o
including a ax deduc ion o addi ional
dep ecia ion on he in e nal a e
o
e u n
o
company
A.
127
implemen a ion
o
he ax adjus men o addi ional dep e-
cia ion,
howe e ,
has
no
ma ked
in luence
on
he
in e nal
a e
o
e u n o
company
A.
This
is
especially
so
when
he
esul
is
compa ed o ha
o
changing
he
me hod
o
alua ion
o
ixed
asse s and changing he p o i abili y a e
allowed.
I
is
in e-
es ing
o no e ha he e ec on he in e nal a e
o
e u n
inc eases
o e
ime.
Fu he
applica ions
o
he
analys s
me hod
Ha ing
de eloped
he
model,
he
me hod
o
analysis
o
he
ou
al e na i e
o mula
p esc ip ions
desc ibed
in
his
a icle
can
be
ex ended
ela i ely
easily
o accommoda e addi ional
applica ions.
Fi s ly, combina ions
o
al e na i e o mula p esc ip ions
could
be
analysed.
Secondly,
he a ious al e na i e o mula
p esc ip ions
can
be
examined
in
ano he
way
by quan i ying
hei
e ec s
in
e ms
o
o he
c i e ia,
e.g.
he
e ec
o
implemen ing
al e na i e
p esc ip ions
on
he
a io
equi y:
o al
capi al
employed.
Finally,
he
model
can
be
used
o simula e
and
analyse
di e en
ypes
o
al e na i e
hypo heses
o
sim-
pli y
he ask
o
selec ing
and de ining
iable
company s a-
egies,
e.g.
•
di idend
policies
• g ow h
s a egies
• ax op ions.
Summa y and conclusions
In
his
hi d a icle
accen
has
been
placed
on he simula ion
and
analysis
o
ou di e en o mula p esc ip ions.
I
~
pea ed ha he subs an ial
di e ences
be ween
he in e nal
a es
o e u n o
companies
A and 8 a e
mainly
he
esul
o
• he alua ion me hod o
ixed
asse s, and
• he p o i abili y a e
allowed.
The me hod
o
analysis
p esen ed
in
his
a icle
would
be
a
meaning ul
means
o
simula ing,
analysing and e alua ing
di e en
o mula
p esc ip ions.
I
is
belie ed
ha
his
me hod
could
be
o
alue
o
all
bodies,
co po a ions, companies and
ins i u ions
in
de e mining
and
e alua ing
selling
p ices.