* Net profit percentage – This calculation takes the idea of profitability one stage further by actually considering the profit as a percentage of turnover after all the other expenses have been taken out. Looks something like this: Net profit x100 = net profit percentage Turnover * Return of capital employed – This calculation is worked out by considering the net profit as a percentage of the capital employed by that business. The reason this ratio is useful because it shows the amount of money an investor is receiving back on their capital as a percentage. This means they can
During the barter system goods and services were traded directly for other goods and services. Money was created to replace the barter system and to stabilize the world’s economy with the exchange of goods and services. Money consists of four major functions, medium of exchange, unit of account, store of value, and standard of deferred payment. When a seller accepts money in exchange of goods and services is known as medium of exchange.
Trade-off is the form of either buying less or a lesser quality item in order to purchase more or a greater quality item. The various considerations made while calculating time value of money (TVM) include considerations about the amount of investment, the time period required to attain the returns, the total returns and the expected future value of those returns along with the net value of the profit or gain earned out of that investment. The time value of money (TVM) can be used to create a retirement plan as it is possible to use this method to find out the future value of the earnings and then be able to invest accordingly. An approximate estimation about the total amount that a person needs in his retirement would help him save and invest accordingly in the current period as then he can go ahead and find out various retirement plans and the percentage of returns that they are offering as well as the appropriateness of payments and other factors. He can then calculate the future value of the investments and find out if it
Operating cost- money spent on a regular basis used by the business, while running the business. This can be a variable cost or a fixed cost. Variable cost- this refers to the direct cost of buying materials, finish goods and direct labour. Variable cost is so called variable as they are depended on the level of outputs. Fixed cost- fixed cost is costs that are not depended on the level of output/sales.
EGT1 TASK 1 McConnell, Brue and Flynn define Marginal Revenue as “the change in total revenue that results from the sale of one additional unit of a firm’s product; equal to the change in total revenue divided by the change in the quantity of the product sold.” (McConnell, Brue and Flynn, 2012). When we look at the relationship between total revenue and marginal revenue we can see that it is purely a mathematical relationship. The formula that is used to determine Total Revenue is the following; Total Revenue = Price X Quantity, (TR = P X Q). McConnell, Brue and Flynn also define Marginal Cost they state that it is “the extra cost of producing one more unit of output; equal to the change in total cost divided by the change in output.” (McConnell, Brue and Flynn 2011). The marginal cost and total cost is directly related to each other.
“Activity Based Costing” presumes that: * Products consume activities * It is the activities (and not the products) that consume resources, * Activities are the “cost drivers,” and * Activities are not necessarily based on the volume of production. Instead of allocating costs to cost centers (such as manufacturing, marketing, finance), “Activity Based Costing” allocates direct and indirect costs to activities such as processing an order, attending to a customer complaints, or setting up a machine. A subset of Activity Based Management (ABM), it enables management to better understand: * How and where the firm makes a profit, * Indicates where money is being spent, and * Which areas have the greatest potential for cost reduction? (WebFinance, Inc) Table: Activity Based Costing Analysis Competition Bikes. Item | Activity Cost Pool | Cost Driver | Cost Driver Quantity | Pool Rate | Product Line | Cost Driver Quantity for Product Line | Activity Cost for Product Line | Product Line Production Volume | Activity Cost per Unit of Product | Factory | 33,400 | Setups | 545 | 61.284 | Titanium | 45 | 2,757.80 | 900 | 3.06 | Setups | | | | | Carbon Lite | 500 | 30,642.20 | 500 | 61.28 | | | | | | | | | | | Quality |
In this approach, the economic value of the assets of a company is the result of a multiple of its earnings: operating profit multiple or multiple of EBITDA. The multiple can be considered a multiple or a multiple stock transaction. It comes from the observation of the value of similar businesses. To obtain the value of equity, we subtract the value of the bank debt and net financial and possibly other elements.
What is the difference between a firm’s cash cycle and its operating cycle? A company’s cash cycle is the average length of time from when a firm pays cash for its inventory to when it receives cash from the sale of that inventory. On the other side an operating cycle is the average length of time between when a firm purchases inventory and when it gets the cash for the product. b. How will a firm’s cash cycle be affected if a firm increases its inventory, all else being equal?
TARGET CORPORATION FINANCIAL ANALYSIS AND INTERPRETATION The ability of a business to meet its short-term cash requirements is called liquidity. It is affected by the timing of a company’s cash inflows and outflows along with prospects for future performance. Efficiency refers to how productive a company is in using its assets, and it is usually measured relative to how much revenue is generated from a particular level of assets. They are both important and complementary. Two measures for evaluating a business's short-term liquidity are working capital and the current ratio.