Different Users and Use of Ratios explained

Introduction Ratios are essential tools for assessing the earning capacity, financial soundness, and operational efficiency of a business organization. Accounting ratios, a group of metrics derived from financial statements, are widely used to measure management’s aptitude, efficiency, and profitability. By expressing relationships between various accounting data points, these ratios form the basis of ratio analysis.…

Meaning of Accounting Ratios and Their Purposes

Accounting ratios are metrics used to compare two or more financial data points from a company’s financial statements to measure its profitability, efficiency, and overall financial health. These ratios are typically expressed in various forms, such as proportions, fractions, percentages, or terms of the number of times one value relates to another. Equation for Ratios:…

What are working capital sources and working capital management?

Working capital is the operating capital of a business which is used in its day-to-day operations, calculated as the current assets minus the current liabilities. The positive working capital commonly indicates that a company can pay off its short-term liabilities almost immediately. Sources of working capital are Share Capital, retained profits,  debentures,  long-term loans, and…

How to compute working capital limits under Turn-over method/Nayak committee

(Nayak Committee norms for computation of working capital limits) The term working capital means sum of the funds invested at various current assets used in the operating cycle, by the industrial and trading establishments. Operating cycle means the length of time required to convert ‘Non-Cash current assets’, (like raw material (RM), work in process (WIP), finished goods (FG),…

The methods used for working capital appraisal

(This post explains the definitions of   working capital ,  Operating cycle  and various methods of working capital appraisal viz.  Tandon’s first method, Tandon’s second method,Turnover method or Nayak committee norms, Cash budget method, Chore committee norms,  Maximum permissible bank finance, Minimum permissible bank finance and Important things to note in assessment of working capital…