Profitability

Profitable business transactions bring more money to the company than they consume. The company cannot operate if its profitability is weak for a long period. This can manifest in, for example, low salaries or difficulties in covering expenses. Profitability can be measured by various financial ratios, such as return on capital indicators or margin ratios derived from the income statement.

Solvency

Solvency refers to the kind of financial structure of a company that allows it to meet its obligations and commitments now and in the future. Good solvency helps a company protect itself during unprofitable years. With good solvency, investments in growth can be possible at the most opportune times, usually during economic downturns. This can even be a competitive advantage in the market and an enabler for increasing market share. Solvency is measured by different financial ratios.

Liquidity

Liquidity refers to the company's ability to have sufficient funds to meet its short-term commitments and obligations. The company must have enough money in its cash reserve so that it has adequate working capital. Working capital is tied up in items like inventory and receivables, which are not available for use until payments are received. Conversely, accounts payable and received advances do not tie up money but temporarily reduce solvency. Even if profitability and solvency are in good shape, it is crucial for the company to ensure that liquidity does not lead to insolvency. Salaries and invoices must be paid on time. Failure to meet these obligations can lead to bankruptcy proceedings in the worst case. Liquidity is measured by both static and dynamic financial ratios.

Representation expenses apply to parties outside the company. Similar purchases provided to the staff are usually considered recreational expenses or non-deductible private consumption in VAT taxation. The deductibility of representation expenses is restricted by the VAT Act. According to the VAT Act, no deduction can be made when the purchase concerns goods and services used for representation purposes.

Advertising and marketing events are aimed at an unspecific customer base and have free access. Marketing expenses' VAT is deductible if the purchases are related to taxable business activities.

Ordinary and reasonable refreshments offered to customers during meetings and negotiations can be counted as negotiation expenses when documentation is done correctly. What type of event is it, who was the meeting with, and for what purpose?

The Supreme Administrative Court's decisions on April 11, 2013 (KHO 2013:63, KHO 2013:64, and KHO 2013:65) clarified the evaluation of the deductibility of expenses for representation and marketing events in VAT and income taxation. The decisions clarify the assessment of whether the costs of events held for a limited group are deductible.

KHO 2013:63

Company A organized events related to the introduction and marketing of its textbooks and the training of their users for teachers in the evenings and weekends. Invitations to these events were usually sent regionally to schools and teachers of the specific subject. Company A had the right to deduct VAT included in the price of goods and services acquired for customary refreshments in events arranged with taxable business activities in mind. Customary refreshments referred to coffee service and buffet-type or equivalent lunch service with beverages. Expenses from dinners and cocktail events arranged after the main program of the events were considered representation expenses, for which the company had no deduction right.

Gross Domestic Product (GDP)

Gross Domestic Product is the value of goods and services produced in a certain area. On the other hand, it also represents the region's income in monetary terms (wages and profits) or added value after deducting intermediate consumption. When depreciation of fixed capital is removed from the gross domestic product, we get the net domestic product. Further, by netting out primary incomes received from and paid to abroad (wages, dividends, etc.), and similarly other income transfers (EU payments, development aid, etc.) from and to abroad, we get the nation's disposable income. Part of the income is used for consumption now (C) and part for investments (I) for future growth. Based on demand, GDP = C + I and/or with the public sector (G) and foreign trade (X) included, GDP = C + I + G + X.

The current price GDP figure is also influenced by inflation. If prices rise, the current price GDP figure increases, even if the actual production volume remains the same. The fixed-price inflation-adjusted GDP figure better reflects whether production volume is truly growing. If it grows or grew, this increases employment with a delay, and vice versa. As the population grows, GDP is produced and distributed among more people. For this reason as well, we see growing GDP figures over the long term, because there are simply more consumers, investors, and producers. Supply must meet demand and demand must meet supply.

What is inflation and deflation?

Inflation is the general rise in the price level. If inflation is high, purchasing power decreases, meaning the real value of money weakens. The same money buys fewer goods and services. The opposite of inflation is deflation. Deflation is dangerous for the economy. You don't buy today because everything will be cheaper tomorrow. The economy stalls exaggeratedly. It is more sensible to invest or buy tomorrow than today, and the day after tomorrow is even better. The velocity of money in the economy decreases. Together with interest rates, the immobility of money becomes costly for some actors, and marginally it is necessary to sell the product at a lower price than before, as interest expenses increase.

What is an interest rate?

Interest is the price paid for money. Interest rates are formed in the markets for different time periods. The interest rate is the price that balances the demand for and supply of money. It is important to distinguish between nominal and real interest rates. The difference between the interest rates is that the real interest rate is the nominal interest rate minus inflation. The nominal interest rate consists of interest and inflation expectations for the future. The real interest rate is the interest rate "cleaned" of inflation. The real interest rate can also be negative when inflation exceeds the nominal interest rate. In this case, the lender loses money despite the nominal interest rate on the loan.

Interest is a key variable when financing company investments. The return on equity can be increased with borrowed capital. An investment is profitable if its return exceeds the required return on capital. A high interest rate reduces profitable investment opportunities on the margin, as the return on investment decreases with increasing interest expenses. This slows economic growth in the long run.

Interest rates can rise solely due to inflation. Every transaction requires more money than before, and the demand for money increases if the supply of money in the economy does not increase. The central bank can influence the amount of money in circulation by changing the policy rate. In this case, money moves from the market to the central bank or from the central bank to the market. If there is a lot of money in the market, interest rates fall and inflation accelerates.

Compensation paid to Santa Claus is usually a fee for work, not a salary.

An individual does not need to withhold tax from the compensation paid to Santa Claus if you pay the same person up to 1,500 euros during the calendar year. Check whether Santa Claus is registered in the prepayment register. An individual usually does not belong to the prepayment register if they do not have business or income-generating activities.

If Santa Claus is not in the prepayment register, the company must withhold tax from the compensation paid to Santa Claus. The company must report the compensation paid to the income register. For reporting purposes, the company needs Santa Claus's personal identification number.

Santa Claus can report deductions related to the fee for work in the tax return, such as travel expenses and the cost of costumes.