Responsibility centers and their types

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.    

Sources of finance

In general, sources of corporate finance can be summarized into the following groups: internal sources of finance – mainly retained earnings external sources of finance: debt – bank loans, issue of debentures, lease equity  - issue of shares Each source of finance be

Cash ratio / Absolute liquidity ratio

Cash ratio (Absolute liquidity ratio) is one of liquidity indicators which informs us about how many times the firm would be able to pay its current liabilities, if it converts its financial assets to cash. The indicator has only the most liquid component in the numerator - (short-term) financ

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

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

Strategic planning and its process

As part of this series you will find basic information about strategic planning process. You will encounter here with terms such as analysis of internal and external environment of the company, vision, mission, goal/objective and strategy. If you are interested in budget and forecast preparation, r

Financial analysis indicators - liquidity

This series follows the series about Group of financial analysis indicators and describes in detail the indicators of 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.

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.

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

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

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