Articles
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...
Budgetary control
Budgetary control is the process during which actual results are ascertained and compared with budgeted figures (variance analysis). The found differences are called variances (or deviations) and are usually further analyzed. A remedial action can be taken based on this analysis. The correctiv
Objective
Objective is a more detailed goal, which the entity aims to achieve in the future in order to fulfil its goals. A few examples of objectives: If the entity goal is to increase profitability, the objectives could be: reduction of indirect costs by 10% during year 20xx increase of sales
Direct (prime) costs
Direct costs are costs directly and clearly identifiable with cost object (usually product or service). That means the costs DIRECTLY associated with the production process of specific product. Together with indirect costs (overheads) they form total costs of the entity. They are sometimes cal
Absorption costing
Absorption costing is a type costing method or rather the approach to costing. It is sometimes called as full costing method as it values the product (or jobs, batches, processes etc.) by direct costs and allocated, apportioned and absorbed share of production indirect costs (production overheads)
Return on costs (ROC)
Return on costs (ROC) is one of profitability indicators. It expresses the amount of profit attributable to unit total cost. Calculation formula Comparison it is particularly suitable for comparison within the company - especially as an indicator of changes in costs ov
Dividend yield
Dividend yield is one of the indicators of market value and capital market. It is an important indicator used when making investment decisions. It helps assess what annual yield (dividend) is obtained by shareholders for each unit of share value held. Calculation formula
Operational plan
Operational plan is short-term (for a few months to approx. 3 years, typically for just 1 year) prepared by lower level management that focus on specific parts of the entity, e.g. on production or sales. Operational plans are based on more general strategic (corporate) plan and work it out into bigg
Variable costs
Variable costs are costs that change with the production volume. If the level of production decreases, total variable costs decrease as well and vice versa. But unit variable costs remain unchanged with the changed production volume. Opposite to variable costs are fixed costs. Behavi
Costing methods and their types
The purpose of costing methods is to determine the cost of a so-called cost object. This is most often cost unit, i.e. usually a single piece of product. In particular, the costing is used to value inventory, for example for the purpose of their proper accounting, product valuation, management of in
Joint and by product costing
Joint and by product costing are specific costing methods that are used for the purpose of assigning costs to separate products in cases where two or more different products are manufactured together in the same production process – so called joint products OR main and by product. &nbs
Price to book ratio (P/B) / Market value to book ratio (M/B)
Price to book ratio (P/B) or Market value to book ratio (M/B) is one of the indicators of market value and capital market. It is the ratio of the market value of shares with its carrying value. The carrying value may be measured in various ways, one of which may be shareholders' equity. &n
Dividend payout ratio
Indicator Dividend payout ratio expresses what proportion of profit is paid out as a dividend / profit sharing. The rest of the profit may be used by the company for further development. Calculation formula Interpretation shareholders favoring profit will prefer