Articles , Page 4
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...
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...
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
Debt-service coverage ratio (DSCR)
Debt-service coverage ratio (DSCR) is one of the indicators of indebtedness and financial structure. It shows the proportion of cash-flow (calculated simply from profit after tax) for the reporting period on all future installments of loans, including interest payments. Calculation for
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
Interest burden
Interest burden is one of the indicators of indebtedness and financial structure and it shows what proportion of earnings before interest and taxes (EBIT) are used to cover interest expense. It is inversed indicator to Interest coverage, which is much more widely used in practice. Calcula
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
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
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
Debt repayment period
Debt repayment period is one of the indicators of indebtedness and financial structure. It shows in years, how long it is expected that the company will repay its loans and borrowings from operating cash flow. This indicator is an inverted indicator of Solvency. Calculation formula
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
Liquidity of assets
Liquidity of assets is the ability to convert assets into cash with the lowest transaction costs possible. (14)
Net margin / Profit margin / Return on sales
Net margin (Return On Revenue - ROR" or Return On Sales - ROS ") is one of profitability indicators. It shows how much profit is generated from the unit revenue. It is a useful indicator to control costs as the formula for operating ratio can be easily derived from it. Calculation
Forecast
Forecast is a quantified prediction of the results that are expected to be achieved by the company in the future. The difference between budget and forecast is: budget shows what the entity aims to achieve (target) forecast shows prediction what is likely to be achieved