Inflation Accounting (CPP Method) and Profitability Ratios in Case of Steel Companies in India
Keywords:Steel Company, CPP, profitability ratios, financial statement
The introduction of current purchasing power (CPP) method is one of the greatest revolutions in the field of accounting. It involves the restatement of some or all of the items in the historical financial statement for changes in the general price level. Under current purchasing power (CPP) method, any established and approved general price index is used to convert the values of various items in the balance sheet and profit and loss account. This method helps to present financial statement in terms of units of equal purchasing power. The important aim of this research is to see the relationship between inflation accounting and financial measurement, and assess the impact of inflation on financial statements of Indian Steel companies for the period of 5 fiscal years from 2006-07 to 2010-11. For this purpose the researcher has used CPP method for converting historical figures to inflation accounting, and also the WPI (wholesale price index) that has been published by Reserve Bank of India. For analysis of data the researcher has used profitability ratios; NPR, GPR, OPR, ROI, ROE, ROWC. The result exhibited that there are significant relationship between inflation accounting and financial measurement. And also it showed that all profitability ratios have declined in CPP method compare with historical cost accounting.
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