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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...
Payback period (PP)
Payback period is the method used to evaluate investment projects. It comes out from relevant profit or cash-flows and calculates the number of years (months or other periods) during which will the invested amount be repaid from the relevant income or cash inflow. Generally, investments with shorter
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.
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.
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
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
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