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HUMANITIES SCIENCE POLITICS

Science, People & Politics ISSN 1751-598X

CONTINUED FROM PAGE 12 | ENERGY SPECIAL | 13

enhanced or diminished by science and politics, practised domestically, nationally, regionally
and internationally. Again for the moment do not yet consider how ethics should be applied.

Earnings in EBITDA, that is the operating profit, are, of course, the expenditure needed to oper-
ate a business on a daily basis. The operating profit does not include such things as tax,
interest on loans, or the amount one is allowed to offset against tax following purchase of a
business asset, be it a building or a patent: ie, depreciation (former) and/or amortization (latter).

That is, the earnings in EBITDA are what is left after spending money on what executives of the
organisation have told their respective Revenue Services was the task/suite of tasks they were
undertaking to generate revenue with intent to make profit. Taken as a whole EBITDA allows
comparisons of like with like.

In other words a hydroelectric plant and coal-fired power station generating the same number of
Gigawatts have different operating profits because they buy different things to accomplish their
task. Operating profit isn't confused by costs such as carbon offset trading - at least I don't think
in accounting terms it is meant to be, because that cost is created after, and not before the fact.

Instead, what the Cabinet of your nation-State has before it is a comparison of apples before
the application of politics, human need, ecosystem welfare, resource management, internation-
al diplomacy, national politics and legacy situations, because the previous Party in power had a
particular constituency which had to be placated, else the Country would have imploded.

ENTER SCIENCE: STAGE LEFT
If scientists combed through a break down of purchases of the two power stations they might
find cheaper ways to accomplish operational tasks, and so increase operating profit. For the
purpose of this exercise that cheaper cost would ignore whether the cheaper method damages
the environment or incurs downstream cost - unless there is law to the contrary. However, just
as when annotating a genetic sequence, it would help to annotate the budgetary line item.

There is another term to be aware of, but to ignore in this analysis, and that is working capital,
meaning the current assets minus current liabilities of your existing or planned utility. That con-
cept engages with collateral. Lenders look for reassurance they will be repaid by looking,
among other things, at the collateral's resilience and liquidity (ease of selling). In this exercise I
am asking science and politics to understand, analyses and optimise only terms in EBITDA.
Operating profit does not include paid for assets, though they can impact profit.

BALANCING THE EQUATION
Earnings (operating profit), then are the left hand side of an equation. On the right there is net
profit, that is profit after all business deductions, tax, interest, depreciation and amortization.
Ignore net profit. One can ignore the net profit because interest, tax, depreciation and amortiza-
tion are being added back in to the mix by the EBITDA formula. In those circumstances a net
profit breakdown ought not to give more information than the operating profit accounts.

At this stage don't worry about which bank might lend the money.

Move now to the column for interest, comprising interest on all loans and lines of credit.

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Issue 1 (Jan-Mar), 2017............................................Science, People & Politics ISSN 1751-598X print and online


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Published Friday 24th February, 2017,
nominally.
Completed 9th April, 2017.

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