Articles , Page 4
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...
Inventory period / Days inventory outstanding
Inventory period (Days inventory outstanding) is one of the indicators of activity, which indicates how many days is the inventory held in stock before it is sold. If we divide number of days in the year (365) by the indicator of Inventory period, we get the indicator of Inventory turnover ra
Asset turnover ratio
Asset turnover ratio is one of the indicators of activity, which shows how efficiently the company manages its assets and expresses what revenues will be brought by unit of assets. Unlike ROA, Asset turnover ratio uses revenues in the nominator, ROA has a profit there. Calculation formula
Budgeting and forecasting under risk or uncertainty
There are several approaches to planning (budgeting) that can be undertaken if uncertainty is a significant factor: rolling budgets scenario analysis/budgeting flexible budgeting calculating expected values carry out an sensitivity analysis
Division of costs to various categories
Costs can be divided into different categories according to their drivers or behavior. In general, cost classification helps understand the costs by studying their behavior and drivers with the aim of their reduction or optimization. And as in other life situations, it is much easier to influen
Net working capital
Net working capital is obtained by subtracting short-term borrowings from (gross) working capital. Calculation formula working capital - short-term borrowings = current assets - short-term borrowings = long-term debt capital + equity – non-current assets General interpretati
Solvency
Solvency is the ability to pay the obligations on time. (14) Solvency is not the same as liquidity. Solvency ratio / Cash-flow ratio belongs to the group of indicators of liquidity and financial structure/indebtedness and expresses the entity's ability to meet all its liabilities (both
Fixed assets turnover ratio
Fixed assets turnover ratio is one of the indicators of activity which shows how efficiently the company manages its fixed assets and expresses what revenues are generated by unit of fixed assets. Calculation formula Non-current assets are often the average from the beginnin
Difference between terms liquidity, solvency and liquidity of assets
There is a difference between the related terms of liquidity, solvency and liquidity of assets. Liquidity 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) More here.
The indicator of overcapitalization / undercapitalization
The indicator of overcapitalization / undercapitalization is one of the indicators of indebtedness and financial structure and possibly also liquidity. The ratio indicates the proportion in which are fixed assets financed by long-term funds. The analysis provides similar result as the analysi
Advantages and disadvantages of financing by equity and debt
In business world, debt financing is paradoxically cheaper than from equity, because: the cost of debt is interest, which is lower than the dividend (profit sharing) paid to shareholders – it is mainly due to the fact that equity holders are satisfied in case of liquidation either after deb
Financial leverage
Financial leverage is the ratio of debt capital to total assets, i.e. the formula is the same as for the Debt ratio. The effect of financial leverage is one of the effects causing the fact that the use of debt capital can be more advantageous than equity. It has a positive effect in the case that r
Liquidity
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) Liquidity is not the same as solvency. Financial analysis deals with the following liquidity indicators.