Tag: Preparation and Analysis of Financial Statements

Financial Statements

Financial Statements are summary accounting reports prepared at stated time periods to inform the owner, creditors, and other interested parties as to performance of the business. Financial Statements uses summarized data to prepare the business’s financial reports. Financial statements have generally agreed-upon formats. There are three main financial statements: -Trading and Profit and Loss Account -Balance…...

The Valuation of Stock

The closing stock figure at the end of the year may be valuated used several methods. First in, First Out (FIFO) Method This method of valuating closing stock assumes that stock of goods are sold in order of those which were first purchased ( First In) being sold first (First Out). Last In, First Out…...

The Trading and Profit and Loss Account

One of the main aims of operating a business is to make profit. Profit is calculated in a Trading and Profit and Loss Account. This is divided in a Trading Account which calculates the Gross Profit for the period, and a Profit and Loss Account which calculates Net profit for the period. The Trading Account…...

The Balance Sheet

The statement of financial position of a business sums up its economic resources, obligations (debts and other non-current liabilities) and owners’ capital at a particular point of time. It also shows how the economic resources contributed by lenders and shareholders are used in the business. Balance sheet items are classified as assets, liabilities, or capital,…...

Accounting Ratios

A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise’s financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm,…...

Mark-Up and Margin Ratios

Mark-up is profit expressed as a fraction or as a percentage of the cost of good. Margin is profit expressed as a fraction or as a percentage of the sales price. Read more →...

Stock Turn Ratio

Stock turn provides an indication as to how fast or slow stock is been sold. It also indicates the efficiency of the business in terms of its control of stock levels. Assuming that gross profit percentage remains constant, a faster sale of stock will mean increases in profits from sales; likewise a slower sale of…...

Gross Profit & Net Profit as a percentage of sales Ratios

Gross Profit as a percentage of sales Sales revenue does not tell the total picture of performance. The sales revenue of a business may significantly increase with only marginal increase in actual gross profit. Gross profit as a percentage of sales provides information on the profitability of sales; that is the gross profit per $100…...

Liquidity,Current & Acid Test Ratios

Liquidity Ratios The ability of a business to meet current financial obligations such as loan repayments, expenses and creditors is crucial to its continued existence. A business is said to be ‘liquid’ when it is able to pay its debts on time. It is equally important that the business collect from debtors their outstanding amounts…...

Return on Capital employed (ROCE)

Capital employed is basically the effective capital that is being used in the business. The average of the capital account for the year i.e. (opening capital + closing capital) ÷ 2 may be used as capital employed. Most people start a business with the hope to make satisfactory returns on their capital employed. The formula…...