Comparison of economic analysis with financial analysis of fisheries: Application of the perpetual inventory method to the Finnish fishing fleet

Research output: Contribution to journalArticleScientificpeer-review

Researchers

  • Heidi Pokki
  • Jarno Virtanen
  • Simo Karvinen

Research units

  • Aalto University
  • Luke Natural Resources Institute Finland

Abstract

The economic performance of fisheries can be assessed in two ways, which are different by definition: economic or financial analysis. The main difference arises from the distinct treatment of capital costs. Financial analysis is based on explicit costs paid by enterprises, whereas in economic analysis, costs are based on the opportunity costs of production factors. In economic analysis, resource rent is the main interest, not the actual profit from financial statements, and the capital cost relates to the capital employed in the fisheries. To determine the depreciation and opportunity costs, one needs to measure the capital value of the fleet. This paper focuses on the application of the perpetual inventory method (PIM) to the Finnish fishing fleet. The results from economic analysis are compared with those from financial analysis in terms of profitability, and the implications of the PIM estimation for the balance indicators are analysed. It is demonstrated that although the active part of a fleet segment can be creating significant resource rent the segment as a whole may be considered imbalanced. A fleet segment with old vessels may be showing a positive result in financial statements meanwhile the long term economic analysis indicates losses when accounting for the opportunity cost of the capital invested.

Details

Original languageEnglish
Pages (from-to)239-247
Number of pages9
JournalMARINE POLICY
Volume95
Publication statusPublished - Sep 2018
MoE publication typeA1 Journal article-refereed

    Research areas

  • Capital valuation, Fishery, Economic analysis, Financial analysis, Perpetual inventory method, Sustainable fisheries, VIABILITY

ID: 27713412