### How to Calculate Break Even Point and margin of safety?

The break- even point is a point of sales of a company wherein total sales covers exactly its total costs. In the other words break even point is the point of zero loss or profit.It means profit is zero at the  break- even point of sales. The company earns  the profit if the sales grow…

### What is working capital gap?

The working capital gap in simple words is the difference between total current assets and total current liabilities other than bank. It can also be defined as Long term sources less long term uses. Working capital gap= Current assets – current liabilities (other than bank borrowings) For example,Currrent if current asset is 100 and current…

### What are the three methods of depreciation and meaning of amortization?

(This article explains three methods of depreciation applied on fixed assets and the meaning of amortization and difference between depreciation and amortization.) Depreciation means writing off the value of an asset over a period of time due to wear and tear, age and obsolesces. There are three major methods of charging depreciation or recognition of the cost…

### What are other current liabilities?

( This post explains,  the difference between other current liabilities and the current liabilities  for the purpose of working capital appraisal and items like contingent liabilities, netting of current liabilities and current assets.) The current liabilities are those dues, to be settled within 12 months from reporting date, including overdraft and loan installments payable within 12…

### What are other non-current asset items?

(This article identifies the non-current assets to be separated  from current assets while appraising  the working capital limits to borrower). The figures of ‘Current Assets’ appearing on the balance sheet is normally a consolidated figure of ‘Current Assets’ and ‘Other non-current Assets’. Hence, the Non-Current Asset items are to be separated from current assets and that only the…

### How to analyse a Balance-sheet?

(This article explains the meanings of  current assets, fixed assets, intangible assets, share capital, reserve and surplus, long-term liabilities, current liabilities, contingent liabilities & assets.) A balance sheet is a financial statement of an entity which is prepared for reporting of financial position of the business as at a particular date. The balance sheet is so…

### How to analyse a funds flow statement?

Funds flow statement takes both cash and non-cash items for accounting. Funds flow statement is used to examine the funds precisely available for working capital from long-term sources. It also enables  assessment of 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…

### Cash Budget pattern of financing

[Cash Budget pattern of financing seasonal productions like sugar, tea and construction activities] The request for financial assistance from  business enterprises dealing in seasonal products like sugar, tea, construction activities, film industries, order based activities etc. are facilitated by the banks through Cash Budget  financing plans. In such pattern of business dealings, the requirement of…

### How to Calculate length of holding period for stocks and receivables?

(A manufacturing unit needs to hold the stock of raw material, work-in-process, finished goods for a length of time in the workplace before dispatching the final products to the customers.This article explains how to calculate holding period  for  stocks and book debts collection) In simple term, operating cycle means the length of time required to…

### 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),…