Income budgets: a measure of how much cash is flowing into the business for a period of time through sales for example. Income budgets: a measure of how much cash is flowing into the business for a period of time through sales for example. Expenditure budgets: A plan of cash outgoing from the business to maybe cover costs for example, over a future period. Expenditure budgets: A plan of cash outgoing from the business to maybe cover costs for example, over a future period. Budget definition: Budgets are financial plans looking at expected costs and revenues over a future period.
Formula: Also known as the Asset Turnover Ratio. The debt ratio compares a company's total debt to its total assets, which is used to gain a general idea as to the amount of leverage being used by a company. A low percentage means that the company is less dependent on leverage, i.e., money borrowed from and/or owed to others. The lower the percentage, the less leverage a company is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered to have taken on.
The vertical analysis of the income statement reports amounts as a percentage of sales. The restated amounts are known as a common-size income statement, horizontal analysis concentrate more on the reported numbers on the financial statements over the past years. The Balance Sheet and the Statement of Income are very important, but they don’t provide enough information for a financial management. The Ratio Analysis in financial statements is to analyze progress of the business. Ratio Analysis enables managers to compare its performance and condition with the average performance of similar businesses in the same industry.
A company’s profits are adversely affected by changes in sales price, costs, and the volume of activity (Edmonds, p. 946, 2007). Therefore it is imparitive that management considers probable changes in cost and volume through the use of a CVP analysis. A CVP analysis measures fixed cost and “assumes true linearity among the CVP variables and a constant level of inventory” (Edmonds, p. 946, 2007). Although flexible budgets are based on different levels of volume and change with the changes in activity, flexible budgets lends itself to CVP analysis due its ability of measuring changes in cost and volume. With the use of a flexible budget, a
These ratios are most useful when compared to other ratios such as the comparable ratios of similar businesses or the historical trend of a single business over several business cycles. Horizontal analysis is a type of fundamental analysis in which certain financial data is used to assess a company’s performance over a period of time. Horizontal analysis can be assessed on a single company over a period of time, comparing the same items or ratios, or it can be performed on multiple companies in the same industry to assess a company’s performance relative to competitors. Vertical analysis is a method of analyzing financial statements in which each item in the statement is represented as a percentage of a single larger item. Vertical analysis makes comparisons between two or more companies in the same industry easier.
By using the information, manager can use cost of capital for restructure the market price and earning per share in order to bring advantage for company. By extension, it can help determine the decision whether to cancel or invest in project. Moreover, the cost of capital can help investors to determine the performance of the top management. With the intention of compare the ability of financial managers based on evaluation between the
Working capital is a firms short term assets that manages daily cash flow. Deciding how much inventory to keep, selling on credit, and setting terms for credit sales are a few examples of working capital. (Ross, Stephens, & Westerfield, 2013) Q3. What is the primary disadvantage of the corporate form of organization? Describe at least two advantages of the corporate organization.
Ratios can tell if the business is using its assets appropriately, and if liabilities of the company are well-managed. It shows whether a business can invest in more capital, or if there is room for business growth. It shows whether a business will be able to pay off its debts or their short-term expenses or their daily expenses. It basically shows the strength and weaknesses of the business. It helps for forecasting on making certain financial decisions.
The RRR can also be called as the discount rate, hurdle rate or the opportunity cost of capital. NPV takes into account the principle in economics referred to as the “time value of money” which implies that a dollar earned today is more valuable than a dollar earned tomorrow. It is to be noted that projects with zero or positive NPV are acceptable to a company from a financial viewpoint as the return from these projects equals or exceeds the cost of capital. Internal rate of return (IRR) is the interest rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero. IRR represents the discount rate at which the present value of the expected cash inflows from a project equals the present value of the expected cash outflows.
The importance of an income statement therefore is to help in making an analysis of how the different decisions the business makes affect its level of profitability. The Cash flow Statement. It is a record of the amount of cash flowing in and out of a business over a given time period being examined. The statement is important to a business since it shows the ease by which a business can create an adequate level of liquidity or cash to finance its running operations. It also helps determine the amount of money available at the end of the business’s financial period which may be used for a subsequent period’s investment.