Net profit

To evaluate design options and carry out preliminary process optimization, simple economic criteria are required. What happens to the revenue from product sales after the process has been commissioned The sales revenue first pays for fixed costs which are independent of the rate of production. Variable costs, which do depend on the rate of production, also must be met. After this, taxes are deducted to leave the net profit. 

FIG. 9-1 Relationship between annual costs, annual profits, and cash flows for a project. A d — annual depreciation allowance Acf — annual net cash flow after tax Ac/ = annual cash income Age = annual general expense Aqp = annual gross profit A/r = annual tax A e = annual manufacturing cost Avc/ = annual net cash income Avvp = annual net profit after taxes A/ p = annual net profit As = annual sales Apc = annual total cost (DCFRR) = discoiinted-cash-flow rate of return (NPV) = net present value. 

FIG. 9-6 Effect of straight-line depreciation on rate of return for a project. Abd — annual depreciation allowance A c/ = annual net cash income after tax Awwp = annual net profit after payment of tax Cj = total capital cost. 

Analogous equations may be written for other additive measures of profitabihty such as net profit. 

Example 12 Expected Value of Net Profit Let iis consider a contractor who stands to make a net profit of 100,000 on a contract. The cost of preparing the bid on the contract is 10,000. There are four competing contractors, each with a probability pi = 0.25 of obtaining the contract. Thus, each contractor has a probability p2 = 0.75 of not obtaining the contract. Therefore, the expected value of the project is... 

With a disbursement of 1000 in Year 0, the discounted breakeven point (DEEP) will be reached in 3 years at a compound-interest rate of 30 percent if the annual net profit Avp = 550.63 per year. Thus, a... 

Row 2 in Table 9-24 is the profit margin (PM) of Eq. (9-127). In this case, the net profit referred to is the net annual profit after tax and depreciation Awp. The net sales is the revenue from annual sales As after deductions for returns, allowances, and discounts for gross sales. 

As can be seen in Table 2 all revenues less expenses associated with selling are summed in Row 17. All expenses including noncash expenses such as depreciation, amortization, and depletion are summed in Row 30. The net profit before tax, Row 32, is obtained by subtracting Row 30 from Row 17 and making any inventory adjustment required. Row 34 is the cash taxes that are to be paid unless offset by investment or energy tax credits in Row 36. The deferred income tax is shown in Row 35. The deferred tax decreases the net profit after tax in the early years and increases the net profit after tax in later years. The impact on cash flow is just the other way around as discussed later. Row 37, profit after tax, is obtained as foliow s ... 

Net Profit = Value of Product — Cost of Reactant — Investment in Reactor — Cost of Operation ... 

Rein-biautOQ, m. (Dyeing) sky-blue shade, -darstellimg, /. preparation in a pure condition. purification, -element, n. pure element (consisting of but one isotope), -ertrag, m. net yield net profit. 

Rein-gewicht, n. net weight, -gewinn, m. net yield net profit, -gewinnung,/. purification. 

Uberlasten, t.t. overload, overburden, over charge supercharge overtax, tfberlauf, m. overflow net profit. 

Ratios well below 1 may indicate financial problems ahead while those substantially greater than 1 may point to poor credit control or under-utilization of cash. This ratio is sometimes known as the acid test . The principal profitability ratio in use is the net profit before interest and tax (NPBIT) to net assets or return on capital employed. 

The net profit is the total income minus operating costs minus depreciation minus tax. The ROI is often calculated for the anticipated best year of the project the year in which the profit is greatest. This criterion is also used for small investments. In general, acceptable ROT are about 20 %, but typical values are difficult to give. Both POT and ROI provide a one-moment-in-time view and do not take into account future cash flows, which may not be constant in the lifetime of the venture. 

Various criteria were proposed for the optimal selection of the equipment configuration and the number and sizes of units. In grass-root design, the capital cost of equipment is mostly used as the optimization criterion. In retrofit design a more appropriate objective function seems to be the net profit, which has to be maximized. Papageorgaki and Reklaitis (1993) formulated the criterion as follows ... 

By August of 1941, evidently because the United States was by now irrevocably committed to all steps short of open war against the Axis, and because "everything will be scrutinized by the censors," Edsel Ford hesitated. Something decided him to go on corresponding anyway. Pearl Harbor made no difference. Two months after Peart Harbor, Dollfus was reporting net profits for 1941 of 58,000,000 francs. He wrote ... 

One rate of return is the ratio of net profit P to total investment... 

Ten grades of crude are available in the quantities shown in the table ranging from 10,000 to 30,000 barrels per day each, with an aggregate availability of 200,000 barrels per day. Refineries X, Y, and Z have incremental operations with stated requirements totaling 180,000 barrels per day. Of the available crude, 20,000 barrels per day is not used. One of the refineries can operate at two incremental operations, Xx and X2, which represent different efficiency levels. The net profit or loss for each crude in each refinery operation... 

Formulate and solve this problem as an MILP, maximizing total net profit over all products and periods. 

This problem is very small, however, with only two decision variables. As the number of decision variables increases, the number of iterations required by evolutionary solvers to achieve high accuracy increases rapidly. To illustrate this, consider the linear project selection problem shown in Table 10.9. The optimal solution is also shown there, found by the LP solver. This problem involves determining the optimal level of investment for each of eight projects, labeled A through H, for which fractional levels are allowed. Each project has an associated net present value (NPV) of its projected net profits over the next 5 years and a different cost in each of the 5 years, both of which scale proportionately to the fractional level of investment. Total costs in each year are limited by forecasted budgets (funds available in... 

The supply agreement sets forth the transfer price at which the generic company is obligated to purchase all of its requirements. The generic apphcant is required to pay a 50% royalty of the net profits from all sales of the generic product. 

Cash flow is the amount of funds available to a company to meet current operating expenses. Cash flow may be expressed on a before- or after-tax basis. After-tax cashflow is defined as the net profit (income) after taxes plus depreciation. It is an integral part of the net present worth (NPW) and discounted cash flow profitability calculations. 

In the chemical business, operating net profit and cash flow are received on a nearly continuous basis, therefore, there is justification for using the condensed continuous interest tables, such as Table 9-23, in discounted cash flow calculations. 

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