Profitability Analysis is designed to meet the requirements of internal profitability analysis. Profitability Analysis enriches actual and plan data with additional characteristics that can be freely defined and allow for detailed data analyses. You design the profitability based on your specific needs. Margin Analysis revolutionized Profitability Analysis in SAP S/4HANA. It not only gives you a snapshot of your management reporting in the past, present, and future, but it also improves your analytical capabilities. SAP ECC provided the Profitability Analysis without any structures and master data, such as standard reports. You could thus structure and configure Profitability Analysis according to your specific needs and requirements. The Profitability Analysis almost resembled a Business Warehouse Cube with the multi-dimensional analysis of data. With the Margin Analysis in SAP S/4HANA, you still have a lot of freedom in designing and structuring your Profitability Analysis but there are more pre-configured and pre-designed functionalities you can take advantage of.

Costing-based Profitability Analysis

Costing-based Profitability Analysis is used the most in the SAP ECC environment. It is the only form of Profitability Analysis that is both available in SAP ECC and SAP S/4HANA. There are no changes to the data model or in the set up and usage of the costing-based Profitability Analysis in SAP S/4HANA. SAP will not invest in the further development of the costing-based Profitability Analysis, but it is still supported for usage and implementation in SAP S/4HANA on premise. It is not possible to use or implement costing-based Profitability Analysis in SAP S/4HANA Cloud or SAP S/4HANA Universal Parallel Accounting. To set up the costing-based Profitability Analysis, you have to define characteristics and value fields. Characteristics include company code, customer, article, and so on. Value fields are groupings of costs and quantities as for example: sales, material costs, sales quantity, etc. The structure in Profitability Analysis reporting is defined by value fields. After defining your master data, you need Characteristics and Value Fields to define how the Profitability Analysis is supplied with data. You rarely create documents in Profitability Analysis directly. Costing-based Profitability Analysis receives data from previous components, such as SAP ERP SD, SAP ERP Materials Management (SAP ERP MM), SAP ERP Production Planning (SAP ERP PP), and so on. The Profitability Analysis interfaces determine the value field where the values from the previous components are posted. Figure 1.1 is an example reporting structure in costing-based Profitability Analysis and the value flow into the costing-based Profitability Analysis.

Figure 1.1: Value Flow in Costing-Based Profitability Analysis

The Account-Based Profitability Analysis

The Account-Based Profitability Analysis was not often used in SAP ECC, as it lacked a lot of functionality compared to costing-based Profitability Analysis. Some users ran account-based Profitability Analysis in parallel to costing-based Profitability Analysis as it falsely promised reconciliation of the Profitability Analysis with the General Ledger. The Account-Based Profitability Analysis was based on cost elements in SAP ECC. In SAP S/4HANA, cost elements became integrated in GL Accounts, as did the Margin Analysis (see Figure 1.2). The Margin Analysis is fully integrated in the Universal Journal. It is therefore reconciled by design.

Figure 1.2: Concept of Universal Journal in SAP S/4HANA The internal and external views in accounting are being harmonized to allow comprehensive reporting with drill-down functionality in the P&L Statement as well as the Balance Sheet to the lowest level of Characteristic. But what are the differences between the traditional profitability analysis and margin analysis? See a comparison in Table 1.1. Table 1.1: Comparison of Profitability Analysis in SAP ECC and Margin Analysis in SAP S/4HANA Finance

Traditional Profitability Analysis (Account-Based and Costing-Based)			SAP S/4HANA Finance / UPA
Area	Costing-based Profitability Analysis	Account-based Profitability Analysis	Margin Analysis
Data Structure	Separate data tables (CE*)	Separate data tables (CE*)	Universal Journal (ACDOCA)
Cost Collector	Value fields	Cost elements	G/L accounts
Reconciliation with SAP ERP Financials	Not ensured	Yes	Yes
Order Balance in Profitability Analysis	Yes	No	Yes
Statistical Conditions	Yes	No	Yes
Valuation	Valuation with different costing variants possible	Valuation only with operational valuation in financial accounting	Valuation with different costing variants possible
Mapping of COGS	Mapping of COGS in cost items (e.g., material, employees, overhead) according to the cost component layout in product cost accounting	Single G/L account for COGS mapping	Mapping of COGS in cost items (e.g., material, employees, overhead) according to the cost component layout in product cost accounting
Production Variances	Mapping of variance categories	Mapping of production variances on a P&L G/L account	Mapping of production variances with various accounts for each variance category
Quantity Fields	Several quantity fields supported	One quantity field to map the sales quantity	Up to three quantity fields supported
Unit of Measure	Several units of measure supported	One unit of measure supported	Up to three units of measure supported
Commitments in Profitability Analysis	No	No	Yes
Derivation of Characteristics without Profitability Segment	No	No	Yes
Real-time Characteristic Attribution	No	No	Yes
Universal Allocation	No	No	Yes

We recommend activating Margin Analysis in SAP S/4HANA. If you currently use costing-based Profitability Analysis in SAP ECC and want to continue to use it when you switch your system to SAP S/4HANA, you should additionally activate Margin Analysis. This doesn’t result in larger data volumes because the documents in Margin Analysis are integrated into the Universal Journal (table ACDOCA). Please also be aware that, right now, there is no migration tool for costing-based CO-PA from ECC to SAP S/4HANA available. If you haven’t used Profitability Analysis yet, you should also activate Margin Analysis in SAP S/4HANA Finance, as it gives you a lot of additional functionality and will allow you to get a 360° view of your financial data to help you make faster and better business decisions.

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The Evolution of Profitability Analysis: From CO-PA to Margin Analysis

Reading time: 4 mins

Kathrin Schmalzing

Key Takeaways

⇨ Profitability Analysis has evolved significantly since SAP ECC.

⇨ Organizations should understand the differences in functionality between CO-PA and Margin Analysis so they can leverage their best option.

⇨ Companies should also be aware of the outlook for the Roadmap of Profitability Analysis for future releases.

Profitability analysis is a subcomponent of controlling with SAP S/4HANA. Profitability analysis in SAP S/4HANA is used to display the internal view of
accounting that supports managers in their decision-making. The data in profitability analysis is enriched with numerous characteristics derived
from the value flow of predecessor documents and therefore can be displayed and analyzed from various angles. In SAP ERP, there are two types
of Profitability Analysis (CO-PA): account-based and costing-based. In SAP S/4HANA, on the other hand, you’ll find costing-based profitability analysis
and margin analysis. This article describes the differences between costing-based profitability analysis and margin analysis. We will also cover the future of margin analysis with Universal Parallel Accounting, which only allows the activation of margin analysis.