Articles , Page 13
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...
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...
Net present value (NPV)
Net present value (NPV) is a method for investment appraisal that is based on discounted cash-flow methodology. It shows the amount by which shareholder´s wealth would be increased. It is calculated as the total of present values of future relevant cash-flows over the project life. It comes out from relevant future cash-flows (free cash-flow)...
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...
Revenue center
Revenue center is a type of responsibility center, for which incomes (i.e. not costs or investments) are collected and analyzed. Revenue centers are often responsible for generation of revenues and have little responsibility over costs. Their objective is therefore maximization of revenues. A
Advantages and disadvantages of budgeting
Benefits of planning/budgeting increases the probability that the company goals and objectives will be achieved helps in defining strengths and weaknesses on which the entity can concentrate problems can be anticipated and avoided by possible remedial action (doing so after the problem crystali
Vertical analysis
Vertical analysis is the method of financial analysis, which is used to calculate the ratio of certain item on a summary item, for example % of inventories on current or total assets.
Methods of financial analysis according to the calculation
Analysis of absolute indicators Analysis of absolute indicators is used to assess the absolute level of various items, e.g. the amount of assets, equity and debt capital, profit, revenue, number of employees, etc. It is used primarily to compare the size of the monitored companies with other compan
Profitability indicators
Profitability is defined as the ability to achieve profit by using various resources. Profitability indicators form one group of financial analysis, which are used to evaluate profitability and efficiency of the company management, i.e. the company's ability to produce maximum output (i.e. marg
Economic Value Added (EVA)
Economic Value Added (EVA) evaluates the value (profit) generated by the company during the year in excess of the cost of capital. Calculation formula NOPAT - (invested capital * WACC) Explanation of terms: • NOPAT →Net Operating Profit After Tax (Operating profit
Investment center
Investment center is a type of responsibility center, for which information about expenses, incomes and investments (assets) are collected and analyzed. It is therefore the most comprehensive center from all other responsibility centers. Separate financial statements are typically produced for inve
Common problems with financial analysis
Problems with inputs that will influence also the quality of the output from the financial analysis: financial statements are prepared with a certain time lag (usually up to 6 months), the current situation can already be different financial statements include the results of ad-hoc transactions
Horizontal analysis
Horizontal analysis is the method of financial analysis, which shows the changes (ratio or difference) of the same item over time (e.g. a comparison of total assets at the end of the reporting period compared to the end of the previous year). It is possible to compare to: the previous pe
Basic groups of financial analysis indicators
profitability indicators liquidity indicators activity indicators indicators of financial structure and indebtedness market value or capital market indicators group of indicators for broader company analysis
Profitability
Profitability is defined as the ability to achieve profit by using various resources. Profitability indicators are as follows.
Return on capital employed (ROCE)
Return on capital employed (ROCE) is one of profitability indicators and it indicates how efficiently the company manages its long-term resources, i.e. how much profit will be generated by the unit of the long-term investment. As the result, ROCE provides better information than ROE, because ROE ha