Articles , Page 5
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...
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
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
Budget
Budget is a quantified operational plan for the upcoming accounting period/s. It is financial plan which works as a kind of target. The difference between budget and forecast is: budget shows what the entity aims to achieve (target) forecast shows prediction what is likely to be achieve
Market value added (MVA)
Market value added (MVA) shows how much value the company delivers to its shareholders. Unlike EVA, MVA evaluates the long-term development and the contribution is evaluated over the entire life of the company (not per year). MVA is used to assess the quality of management work. Calcul
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
Goal
Goal is the general and brief aim, which the entity wants to achieve over the long-term period, say during the next 5-10 years. Goals do not necessarily need to fully meet SMART definition (Specific, Measurable, Achievable, Realistic, Time-specific), if they are broken down into a set of objective
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
Scenario analysis
Scenario analysis is a prediction method under which several possible outcomes (variants) are worked out. It is often used during budgeting process and decision-making, mainly as a method of reducing uncertainty. The most common scenarios are: optimistic (best-case scenario) realistic – i
Indicators of indebtedness and financial structure
The company may be financed by equity (share capital, share premium, retained earnings) and debts (loans, outstanding liabilities etc.). Indebtedness is the term used to evaluate the extent to which is the entity financed by debts (or generally liabilities). Indicators of indebtedness and