MEASURING THE COMPANY’S REAL PERFORMANCE BY PHYSICAL CAPITAL MAINTENANCE

The measurement of profit depends on the concepts of capital maintenance used by the company in preparing its financial statements. The IASB Framework offers the option of choosing between two concepts of capital maintenance: financial capital and physical capital. This study highlights the adverse consequences of financial capital maintenance and supports for the recognition of profits by maintaining the physical capital. In this study we proposed a theoretical model to calculate the real profit by maintaining the physical capital. The model is applied for all Romanian production companies listed with available data by the restatement of information disclosed in the financial statements. The results demonstrate that the model based on physical capital maintenance captures the company’s real performance. This model could be an alternative to the model based on financial capital maintenance which operates nowadays on the financial markets.