Distress Sale: A distressed sale occurs when the owner of the asset like property, stocks or any other assets, pressed for urgent sale which is usually under disparaging conditions. Distressed sales arises on account of funds tied up in an asset which is needed within a short period of time for dire need of money…
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…
A credit rating is an opinion of a particular credit agency regarding the ability and willingness of an entity (government, business, or individual) to fulfill its financial obligations in completeness and within the established due dates. A credit rating also signifies the likelihood a debtor will default. Credit ratings date back to the early 20th…
The concept of Financial Building Blocks (FBB) serves as a powerful tool for understanding the essential components of a robust financial plan. Just as a building needs a strong foundation to endure the test of time, a solid financial structure is fundamental for sustained financial health. The Role of Financial Management Financial management integrates organizational…
The funds flow statement takes both cash and non-cash items for accounting. It is used to examine the funds precisely available for working capital from long-term sources. It also enables assessing an entity’s ability to meet long-term obligations. The funds flow takes place only when there is an increase or decrease in working capital owing…
The Fundamental Principles of Finance offer a foundational and innovative approach to understanding financial theory. These principles are essential for making informed financial decisions. The five major principles of finance are: Time Value of Money Money today is worth more than the same amount in the future due to its potential earning capacity and the…
The land, building, machinery etc. are known as non-liquid assets because it can take months for a person or company to receive cash from the sale of such assets. Unlike non-liquid assets, the liquid assets are cash in hand or the other assets which are cash equivalent. In simple words, liquid asset can be described…
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…
The operating cycle of a manufacturing unit means the length of time required to convert ‘Non-Cash current assets’, (like raw material (RM), work in process (WIP), finished goods (FG), and receivables) into cash. The appraisal of working capital finance means the assessment of gross working capital, net- working capital and working capital gap for assessment of…
The interest coverage ratio is a debt and profitability ratio used to determine how easily an entity can pay interest on its outstanding debt. EBIT is used in calculating the interest coverage ratio. Interest coverage ratio= Earnings before Interest and taxes (EBIT) ÷Total interest expenses Whereas EBIT is the operating profit of a company and…