Articles , Page 3
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...
Debt repayment period
Debt repayment period is one of the indicators of indebtedness and financial structure. It shows in years, how long it is expected that the company will repay its loans and borrowings from operating cash flow. This indicator is an inverted indicator of Solvency. Calculation formula
Interest burden
Interest burden is one of the indicators of indebtedness and financial structure and it shows what proportion of earnings before interest and taxes (EBIT) are used to cover interest expense. It is inversed indicator to Interest coverage, which is much more widely used in practice. Calcula
Debt to equity ratio (D/E)
Debt to equity ratio (D/E) is one of the indicators of indebtedness and financial structure. It expresses the proportion of debt capital to equity. The inverted indicator is Equity to debt ratio. Calculation formula Instead of the debt capital can be used only payables, loans and
Debt ratio / Debt to assets ratio
Debt ratio (Debt to assets ratio) is one of the indicators of indebtedness and financial structure. It expresses the ratio of debt to total assets. The higher is the indicator, the higher the level of debt and the associated risks. It must together with indicator Equity ratio / Equity to assets rat
Receivables turnover ratio
Receivables turnover ratio is one of the indicators of activity, which shows how many times during the period (year) is a unit of receivable converted into sales. Calculation formula Trade receivables are often the average from the beginning and final bal
Days payable outstanding
Days payable outstanding is one of the indicators of activity, which reflects how many days it takes us on average to settle our payables. The indicator is well applicable during negotiating delivery terms with suppliers. Calculation formula Trade payables are o
Debt-service coverage ratio (DSCR)
Debt-service coverage ratio (DSCR) is one of the indicators of indebtedness and financial structure. It shows the proportion of cash-flow (calculated simply from profit after tax) for the reporting period on all future installments of loans, including interest payments. Calculation for
Interest coverage / Times Interest Earned - TIE
Interest coverage (Times Interest Earned - TIE) is one of the indicators of indebtedness and financial structure. It shows how many times the earnings before interest and taxes (EBIT) are higher than interest expense, or how many times can the earnings be reduced before it reaches the bor
Equity ratio / Equity to assets ratio
Equity ratio (Equity to assets ratio) is one of the indicators of indebtedness and financial structure. It expresses the ratio of equity to total assets. This indicator shows what proportion of assets will remain to the owners if the company pays out all the obligations. From the inverse perspective
Payables turnover ratio
Payables turnover ratio is one of the indicators of activity, which shows how many times during the period (year) is a unit of payables purchased. Calculation formula Trade payables are often the average from the beginning and final balance. Interpretation and
Inventory turnover ratio / Stock turnover ratio
Inventory turnover ratio (Stock turnover ratio) is one of the indicators of activity, which shows how many times during the period (year) is a unit of inventories converted into revenues (i.e. is sold). Calculation formula Inventories are often the average from the beg
Receivables collection period / Average collection period
Receivables collection period (Average collection period) is one of the indicators of activity, which indicates how many days it takes our customers to pay our receivables. If we divide the number of days in the year (365) by the Receivables collection period indicator, we get Receivables tur