ECONOMIC VALUE ADDED (EVA) Economic Value Added (EVA) or Economic Profit is after-tax net operating profit (NOPAT) minus a capital charge. This measure is based on the Residual Income technique that serves as an indicator of the real profitability of business. The real profitability occurs when additional wealth is created for share shareholders and the…
In economics, profit maximization is a term which denotes the maximum profit to be earned by a company in given period of time. The concept of profit maximization focuses generally on short term projects. Its target is efficient allocation of resources, Optimum utilization that lead to maximum profit. In the concept of profit maximization, the…
Scenario Analysis is a financial process through which investors & business managers can determine the amount of risk they are taking before making the investment or starting a new project. It is a way of structured thinking in which the earnings or value impact is computed for different interest rate scenario that may seem relatively…
The term ratio means a simple division of one number by another. It is measured by the number of times one number is contained by the other, either integrally or in fraction. The ratio analysis of financial statement means the process of calculating structural relations of different items and groups in the financial statements. Generally,…
A credit rating is a comprehensive tool for the assessment of the financial strength of corporates and Government entities. A credit rating agency is a company that provides an independent evaluation of the creditworthiness of debt securities issued by governments and corporations especially their ability to meet principal and interest payments on their debts. These…
Credit management in simple words is the process of monitoring and collecting payments from the borrowers. A specialized credit management system eases the amount of capital tied up with debtors. The principles of credit management revolve mainly around the concepts of safety, Liquidity, Diversity, and Profitability. The banks all over the world examine following details…
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 is able to pay off its short-term liabilities almost immediately. An important objective of the working capital management is improving profitability…
A common size financial statement is an income statement or balance sheet in which all items are expressed as percentages of a common base figure rather than as absolute numerical figures. For example, in a common-size income statement you will find the income and expenditure amounts as percentage of net sales. Similarly, a common size…
Trend analysis is a method used in technical analysis that tries to predict the future. Under this system, Revenue and cost information from a company’s income statement is arranged on a trend line for multiple reporting periods and then examined for trends and inconsistencies. The object of trend analysis is to spot actionable patterns from…
In banking parlance, volatile liabilities are ‘hot’ or ‘unstable’ funds that can disappear from bank’s balance sheet overnight. Demand deposits are best examples of volatile liabilities which can move out of the bank overnight. Thus, funding volatility ratio (FVR) is calculated by proportion of liquid assets to CASA deposits i.e. FVR=Liquid assets÷ CASA deposits. In…