IDEAS home Printed from https://ideas.repec.org/a/eee/jomega/v5y1977i6p673-688.html
   My bibliography  Save this article

A profitability model for tactical planning

Author

Listed:
  • Eilon, S
  • Cosmetatos, GP

Abstract

Simple models reflecting changes in aggregate company behaviour in response to changes imposed by management decisions and/or factors outside the direct control of management provide useful tools for tactical planning purposes. One such model is discussed in this paper. The model enables management to assess explicitly and quantitatively the effect on the rate of return on capital employed of primary causes of change in any of the key variables affecting company performance, such as the unit price, the unit cost, the output level and the capital employed. Simple functional relationships are proposed between the major variables in the model, such as the level of output and the unit cost, the unit price and the volume of sales, the working capital requirements and the general level of the firm's activity, etc. and these are based on analytical considerations, empirical evidence and a series of assumptions. These relationships give rise to a set of parameters which are incorporated in the model and describe the operational (cost structure), financial (capital structure) and marketing (elasticity of demand) position of the company under study. Numerical results obtained from the model seem to suggest that the sensitivity of the rate of return to some of the parameters and underlying assumptions is relatively small, implying that the inter-dependence between some of the variables can be ignored, thus simplifying the problems associated with data collection and model evaluation. Both the model and the methodology of analysis employed are flexible enough to allow: (1) application of the model to alternative sets of functional relationships between variables and/or underlying assumptions; (2) further decomposition of the model to include additional variables depending on the particular objectives of the study; (3) modification of the model to explore the effects of management decisions or those of changes in external factors on productive unit and product profitability; and (4) analysis of models reflecting the effects of changes which are imposed on the system on measures of business performance other than the rate of return on capital employed.

Suggested Citation

  • Eilon, S & Cosmetatos, GP, 1977. "A profitability model for tactical planning," Omega, Elsevier, vol. 5(6), pages 673-688.
  • Handle: RePEc:eee:jomega:v:5:y:1977:i:6:p:673-688
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/0305-0483(77)90048-2
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tatsiopoulos, I. P. & Panayiotou, N., 2000. "The integration of activity based costing and enterprise modeling for reengineering purposes," International Journal of Production Economics, Elsevier, vol. 66(1), pages 33-44, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:5:y:1977:i:6:p:673-688. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.