Articles , Page 6
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...
Stepped (semi-fixed) costs
Stepped costs (also known as step cost) or semi-fixed costs are fixed costs which become variable after the production reaches certain level of output. In other words, different fixed rates are valid within different production ranges. An example can be rent of production premises. If the volu
EBIT / PBIT
EBIT (PBIT) is the total profit/loss without: interest expense (i.e. cost of debt) income tax possibly also profit/loss from discontinued operations (defined in IFRS, other GAAPs may not use this concept) EBIT usually also includes so-called Non-operating result, which is the result o
Progressive costs
Progressive (over-proportionate) costs are costs that increase more quickly when the production level increases. They are most often related to variable costs which can be linear (proportionate), progressive or degressive. If they are progressive and production increases, unit costs increase. C
Financial analysis indicators - liquidity
This series follows the series about Group of financial analysis indicators and describes in detail the indicators of liquidity.
Equity to debt ratio
Equity to debt ratio is one of the indicators of indebtedness and financial structure. It is inversed indicator to Debt to equity ratio (D/E), which more widely used. Calculation formula Interpretation and recommended values can be derived from the text presente
Liquidity of assets
Liquidity of assets is the ability to convert assets into cash with the lowest transaction costs possible. (14)
Difference between profit and cash-flow
Profit is usually not equal to cash flow because profit is defined as the difference between income and expenses, while cash flow as the difference between receipts and expenditures. Accounting profit is the final line in the income statement, while cash flow is the final line in the statement of c
Difference between expense and expenditure
Expense is not the same term as expenditure as well as income is not the same as receipt. Expenditures (and receipts) are associated with cash movements and as such affect the entity´s cash flow. Expenses represent consumption of inputs (material, labor etc.) in order to generate re
Financial analysis indicators - financial structure and indebtedness
This series follows the series about Group of financial analysis indicators and describes in detail the indicators of financial structure and indebtedness.
Working capital
Working capital is formed by current assets and includes inventories, receivables and financial assets. It is another indicator of liquidity. Calculation formula inventories + receivables + financial assets Another form of working capital is Net working capital.
Cash conversion cycle
Cash conversion cycle is one of the indicators of activity and liquidity, which indicates the number of days beginning with the date of payment for purchased materials, labor and other costs up to collecting cash for the receivable. Calculation formula Inventory turnover period + Rece
Indicators of activity
Activity indicators evaluate the efficiency of the company in the use of its assets. They evaluate in particular how long the property holds its form, but it converts into sales or cash and turnover rate. If the company holds: too much assets → inefficiency; in addition, the assets