Articles , Page 11
Disadvantages of accounting profit
Profit as a basic profitability indicator used by companies has the following drawbacks: profit does not equal net inflow of money, costs do not equal expenditures and incomes do not equal receipts profit includes the results of operations that are ad-hoc and will not be repeated in the future various methodologies particularly in the ar...
Liquidity indicators
Liquidity is the entity´s ability to convert its assets into cash for the purpose to settle its obligations, ideally with the lowest possible transaction costs. (14) Indicators of liquidity Liquidity indicators show the extent to which the current assets of the company in various forms cover its short-term obligations. Thus, the num...
Standard costing
Standard costing is a cost accounting measurement basis that predicts unit costs and production quantities based on predetermined standards before the production even begins and as such it is an alternative method to historical cost accounting. It is suitable for production, which is standardized and mass or repetitive. Standard costing serves as...
Tax shield
Tax shield is one of the reasons why is the use of debt cheaper than equity. This effect arises, because interest is usually tax deductible expense, while the dividend (profit sharing) is not.
Earnings per share (EPS)
Earnings per share (EPS) shows the amount of annual profit per a single share. It is important indicator used during investment decision-making. Calculation formula * Number of share is mostly the average for the period weighted by the number of days. EAT (PAT) is often reduced
Price to earnings ratio (P/E)
Price to earnings ratio (P/E) is one of the indicators of market value and capital market. It indicates how much are the investors willing to pay per unit of profit. The indicator is primary but not the only indicator used when making investment decisions. C
Distinction between costs, expenses and losses
To start with the topic, it is necessary to distinguish between the terms "costs", "expenses" and "losses. Although "costs" and "expenses" are sometimes mistakenly used interchangeably, there is a difference. Expense is a used cost incurred to
Direct material costs
Direct material costs are together with direct labor costs and possibly direct expenses part of direct (prime) costs. As being their part, they are directly and clearly identifiable with cost object (usually product or service). That means they are the costs DIRECTLY associated with the production p
Production indirect costs (Production overheads)
Although production indirect costs (also known as production overheads) are costs associated with the production they are indirect which means they are NOT directly and clearly identifiable with cost object (usually product or service). Together with non-production overheads they form total indirect
Indicators of market value or capital market
Investors give their money into undertakings mainly for the purpose of obtaining: dividends capital gains from sale of business or its shares - if the market value of shares grows, the potential proceeds from their sale increase as well Market value indicators often use data about mark
Cash-flow per share
The indicator Cash-flow per share shows the amount of operating cash-flow per a single share. It is therefore similar to Earnings per share (EPS), but because it does not have profit, but cash-flow in the nominator, it general disadvantages of EPS resulting from the use of profit (especially ea
Du Pont analysis
Du Pont analysis is used to decompose the indicator of ROE and subsequently also ROA to other indicators. Therefore, it shows the components of ROE (ROA), which can then be analyzed in greater detail. Scheme
Direct labor costs
Direct labor costs are together with direct material costs and possibly direct expenses part of direct (prime) costs. As being their part, they are directly and clearly identifiable with cost object (usually product or service). That means they are the costs DIRECTLY associated with the production p
Direct expenses
Direct expenses are costs that form part direct (prime) costs but are covered neither in direct material costs or direct labor costs. As being part of direct costs, they are directly and clearly identifiable with cost object (usually product or service). That means they are the costs DIRECTLY associ
Indirect material costs (Material overheads)
Indirect material costs (material overheads) are together with indirect labor costs and possibly indirect expenses part of indirect (overhead) production costs. As being their part, they are NOT directly and clearly identifiable with cost object (usually product or service). Example of indirect ma