How to calculate, interpret, and infer ratios in a financial statement?
The analysis of financial statements means identifying a business establishment’s financial strengths and weaknesses by interpreting and inferring the financial statements of the establishment. These statements cannot be analysed by the mechanical method as a financial statement is designed to give a fair, inaccurate view. Interpreting financial statements requires analysis and appraisal of the performance…
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Preparation and analysis of a Profit and Loss Statement
[This article elucidates methods and techniques used to analyze profit and loss statements, the Format of the operative statement, the meaning of gross profit, operating profit and net profit, depreciation, amortization, etc.] The profit and loss (P&L) statements are one of three financial statements that every public company issues quarterly and annually, along with the…
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Profit Volume ratio (P/V ratio) and its significance: Comprehensive overview
The profit-volume (P/V) ratio is a key metric for measuring a business’s profitability. It shows how a company’s profit changes in response to changes in sales volume. The P/V ratio is also known as the contribution ratio or marginal ratio. A company determines the selling price of its products after calculating of the fixed cost,…
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Definition, Significance, and Applications of Standard Costing
Definition of Standard Costing Standard costing is an accounting methodology used to estimate the expenses associated with a production process, as manufacturers cannot predict actual costs in advance. This approach enables manufacturers to plan for future expenditures related to direct materials, direct labor, and overhead, facilitating effective cost management. The Chartered Institute of Management Accountants…
Read articleMeaning of Accruals and Trade Credit in Working Capital
Accruals are a method of accounting that records transactions when they occur, while trade credit is a financial arrangement that allows a buyer to purchase goods or services without paying immediately. Accruals Accrual accounting is an accounting method that records revenues and expenses before payments are received or issued. In other words, it records revenue…
Role of Cash and Marketable Securities in Working Capital Management
The primary objective of working capital management is to ensure the efficient management of current assets, including cash, raw materials, work-in-process, finished goods, and receivables. Achieving this involves determining the optimal investment level in each component to support smooth business operations and financial health. The Role of Cash in Working Capital Management Cash is the…
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