Contribution Margin Calculation on the Basis of IFRS

In addition to external reporting, there is often the question of how the controlling of financial companies should be handled internally. It is necessary, on the one hand, to address what type of earnings calculation is to be selected as a rule, and, on the other hand, to determine the numbers that will be used to feed it. The contribution margin calculation has also become established among financial service providers as an earnings calculation for internal purposes. When designing and determining the concept, a basic distinction must be made between an ex ante calculation or budgeting on the one hand and ex post calculation on the other.

Harmonization of Earnings Calculation and Contribution Margin Calculation with External Reporting

As a matter of principle, the aim should be to harmonize the internal earnings calculation and contribution margin calculation as much as possible with external reporting. If two different sources of figures or bases of assessment are used, considerable differences can arise and communication with external stakeholders can of course become more difficult if figures other than those used internally for controlling and decision-making are communicated.

The GAAP basis on which the amounts were determined may no longer make any difference ex post after a transaction has been completely settled, but since straight instruments, like loans or also insurance contracts and other financial products, run partly over many periods, the reported amount may make a crucial difference here. On the other hand, accounting mismatches, which could not be compensated for on the balance sheet, should of course have no influence on economic decision-making and incentivization.

Factors Influencing Earnings Calculation and Contribution Margin Calculation

When designing the contribution margin calculation, it is also important to ensure that sector-specific factors, such as the regulatory focus on net interest income (NII), are also reflected here or can be derived from it, without neglecting the interaction with a product’s other earnings components.

Since financial services are largely based on revolving customer relationships, cross-selling aspects must also be taken into account or a customer costing must also be implemented in addition to product costing.

FAS AG Support for Earnings and Contribution Margin Calculation

FAS AG supports credit institutions, insurance companies and other financial service providers in designing and implementing earnings calculations for internal purposes. FAS AG services range from the design of an earnings calculation to the definition of the data origin, the standardized transition to other earnings calculations required externally or by regulators to the procedural design and implementation of the reporting processes including embedding in quality assurance and ICS steps.

If you are interested or have any questions, please contact us.

 Andreas Huthmann Member of the Board/Managing Partner