The Profits Premium Paradigm
COMMERCIAL IN CONFIDENCE GOOD-BYE TO GOODWILL, HELLO PROFITS PREMIUM How Goodwill is really math, how Staff can really be assets, and why normal Accounting reports make managers cannibalize their own future profits. (or, more formally) THE PROFITS PREMIUM PARADIGM A revision of the nature of ‘Goodwill’ can lead to modified accounting reports and create new ways to understand and manage assets, profit and value Andrew J. Olsen andrewolsenmail@gmail.com , August 4, 2012 Abstract: The insight that “Our Staff are our greatest asset” or at least an asset of some kind is contradicted by conventional accounting reports. Staff do not appear under ‘Assets’ in the Balance Sheet and are purely an expense in the Profit and Loss (P&L). Firing Staff even improves Net Profit (NP) because it reduces expenses in relation to revenue. This paradigm does not facilitate an asset management approach to Staff and can even lead them to be seen as a necessary evil.