“But the same businessmen who so ludly complain about economic illiteracy are themselves the worst offenders. They don’t seem to know the first thing about profit and profitability. And what they say to each other as well as to the public inhibits both business action and public understanding.
For the eseential fact about profit is that there is no such thing. There are only costs.”
~ Peter Drucker, Measuring Business Performance (WSJ August 3. 1976)
One of the basic causes of poor performance on the part of analysts, investors and business managers is the yardstick they use to determine how a business is doing — earnings per share.”
~ Prof. Peter Drucker ‘Measuring Business Performance”’3.8.1976, WSJ
“Long-range planning does not deal with the future decisions, but with the future of present decisions.” ~ Prof. Peter Drucker
“- Matt Hunter: Tell me something John, what are you going to do when the social security people find out you've been moonlighting?
- John Eagle: Ain't found out about my air boat business. Been doing it for 40 years.
- Matt Hunter: That's probably because you haven't made a profit in the last thirty-nine.”
~ Invasion USA (with CHUCK NORRIS - Matt Hunter DEHL BERTI - John Eagle)
Many years ago, so long ago that I can’t even remember which decade it was (I am going to guess that it was at the very beginning of the 1990s), I came across a reference to an article by Peter Drucker, the fabled professor of management theory and practice. Drucker is/was one of those Yoda-like figures whom everyone in business is fond of quoting but few, outside of dedicated devotees have actually read (a bit like Mark Twain), but I can distinctly recall being intrigued by the article that referenced him and his premise that there is, except in some unusual circumstances, no such thing as profit.
The article referenced an essay by Drucker, published in the Wall St. Journal in Feb 1972 , one of two seminal essays published by Professor Drucker in the Wall St. Journal between 1972 and August 1976*. The essays are of such clarity and insightfulness that I could probably spend the rest of my life following the endless variations on the central theme down exploratory rabbit holes and still not exhaust the rich seam of intellectual business gold that the articles provide. They remain as relevant today as when they were written almost half a century ago.
Drucker’s foundational point is that in the presentation of standard accounting schedules, the residual surplus that lands at the bottom of the profit and loss statement after taxes have been deducted (or even before at the level of operating profit) is an illusion and grossly falsely interpreted by both economists, business owners, managers as well as political critics (and supporters) of the capitalist system. The illusion rests on the fact that what is “leftover” and lumped together as profit is in fact an entirely arbitrary quantum that simply ignores a number of critically important real costs for the sake of creating a taxable amount of defined surplus. This accounting legere de main does not adequately reflect critical costs that should be applied to pretty much every business in order correctly to represent the true cost of doing and remaining in business. In other words what we call profit is in fact no such thing and is as wrong in its depiction as it would be if one were to ignore interest costs, rents or depreciation in the calculation.
Drucker - uniquely and with a clarity of insight rarely displayed anywhere else in business literature (at least before that essay) - reflected on the essence of profit and maintained that in essence, it contained three specific costs that should be deducted from the stated accounting calculation to derive the true surplus:
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