How to measure success?

As Péter Biczó director of Price Waterhouse Coopers Kft. has pointed it out to us, different figures may be used to describe market success, according to different systems of accounting. Success however, can be measured by two basic figures, revenues and profitability. Of course, many other figures are used, but these two are the most important. Market share is revenues per total market sales. It is not quite as easy to define “revenues” as it seems. For example, we get different figures if we use Hungarian standards or the International Financial Reporting Standards. Market share is therefore dependent on the system of reporting used. Another problem arises from taking discounts and rebates into account. These should be deducted from revenues. This is done subsequently in IFRS, but under the Hungarian system, only discounts listed on the invoice are taken into account, which means revenues may appear to be higher than they actually were. The IFRS system is more focused on content, with subsequent discounts immediately reducing the value of inventory and the size of profit. Under Hungarian accounting standards, only invoiced discounts reduce the purchase value of inventory. Subsequent discounts appear as other income and profit will appear to be higher than it actually is. In case a 10 per cent subsequent discount is granted for a purchase of 100 units, this will result in 90 units of profit under IFRS and 100 under the Hungarian system. The volume of subsequent discounts has increased significantly in recent years, which means that differences arising from use of the above systems have also grown. Considerations related to cash flow can also be a source of problems. In systems where subsequent discounts are frequent, the cash flow requirement is higher, than in systems where discounts are simultaneous. In FMCG companies, subsequent discounts have a reverse effect on cash flow. Special rebates, “three for two” promotions, coupons and bonus points can also appear in very different ways in the accounts of FMCG companies and retailers. Leasing transactions are also treated quite differently under IFRS and Hungarian standards, as different definitions are applied. This can lead to the same transaction being recorded in a different way in different books. Indebtedness and profitability of a company may also be effected and appear to be different according to IFRS and Hungarian standards.