ency in Chapter 4 the investments in the network can be split into operational investments to meet customer growth (baseline cost), and discretionary investments for purposes such as the introduction of a new technology. The discretionary investments are often large and irregular. The cost of financing them, often through loans, is converted into annualized capital cost corresponding to interest and depreciation. In the context of this chapter we simply add the two investment types. Then we add operating expenses and bought services including interconnection expenses. See Figure 9.3. This gives us the overall cost of operation. The operating revenue side consists of revenue from the end-user market and/or income from sold services to other actors. The revenue from the end user is based on fixed and traffic-based revenues. The difference between revenue and cost gives the operating income. Adding financial posts (revenue and cost) and taxes to the operating income gives the net income or the (net) profit. Balance sheet and profit and loss account Financial calculations Liquidity Revenues and expenses Solvency Operating expenses Investment expenses Bought services Revenue interconnect Services Tariff Accounting Accounting of Marketing expenses given services, incl interconnect End-user segments Market battle field Competition Market demands Other operators and service providers Figure A2.2 Profitability model Appendix 2: Financial Calculations In Figure A2.2 the cost and revenue elements are brought to the 'financial calculation layer'. The outcome from these calculations can be oriented towards comparisons between alternative discretional investments (NPV, net present value), performance measures (ROCE/ROI, return on capital employed/return on investment) or risk assessment. BUSINESS ACCOUNTING The Balance Important terms are assets (working capital, and inventories such as buildings and machin- ery), liabilities (short- and long-term debts), and owner's equity (Assets - Liabilities). The assets mentioned above ar