Profitability Models: Effective Tools to Add Value to Profitability Information

Bridging the gap between profitability reporting and profitability management is a problem for many financial institutions. A profitability model can be an effective approach to show management the usefulness of costing and profitability information. Relatively simple models can be used to demonstra...

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Bibliographic Details
Published in:Financial managers' statement 1989-05, Vol.11 (3), p.20
Main Author: Duncan, G Keith
Format: Article
Language:English
Subjects:
Branch banking
Financial reporting
Product
Profitability
Retail banking
Online Access:Get full text
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Summary:Bridging the gap between profitability reporting and profitability management is a problem for many financial institutions. A profitability model can be an effective approach to show management the usefulness of costing and profitability information. Relatively simple models can be used to demonstrate the profitability dynamics of automated teller machines, for example. Somewhat more sophisticated models are required to illustrate how retail banking deposit and loan products interact to generate profit or loss from a branch network. Once product profitability has been modeled to management's satisfaction, the next step is to model the profitability of customer types or households that are typical of different market segments. To be effective, this should reflect both account balances and transaction levels. The accountants who produce the figures must ensure that management understands the analysis, believes the results, and knows how to use the information.
ISSN:0887-4808