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Banking & Finance Articles
Page 22 of 102
What are the contingent assets?
Contingent asset is that asset for a company, which has future economic benefit. This means that the asset may arise in future based on contingent events, which the company has no control over.Company discloses this type of asset, when an income flow is probable. Reasons for not recognizing this as an asset is its uncertain event and conservatism.Examples of contingent assets are as follows −Gain from lawsuit.Litigations.Legal disputes etc.Accounting treatment for contingent assets are governed by International accounting standard 37. These are not recognized, but disclosed, when it has inflow benefits. Asset is not considered as contingent, if the asset is ...
Read MoreHow to Calculate Sales-Related Profitability Ratios?
Profit can be measured in a number of ways. For example, Gross Profit is the profit that is the difference between the manufacturing cost of goods sold and sales. This is called Earnings Before Interest, Depreciation, Taxes, and Interests Amortization (EBIDTA) by many firms. However, many other companies calculate net income or Profit After Tax (PAT). As taxes cannot be controlled, to negate their influence Profit Before Tax (PBT) is calculated.Investors, however, use operating profit or Earnings Before Interest and Taxes (EBIT) as a measure of profitability. Moreover, on an after-tax basis, Net Operating Profit After Tax (NOPAT) is also calculated by ...
Read MoreHow to Calculate Interval Ratio?
What is Interval Ratio?The Interval Ratio or Interval Measure is the ratio that calculates the funds that a company required to run its operations. This ratio helps the companies survive by letting them know how much funds they will require for a particular project on a long-term basis.In other words, the interval ratio measure shows the number of days that a company will survive with the funds it has in its hands.The interval ratio can help a company plan for the future in advance. By knowing how long a company can run without accessing any other source of funding, the ...
Read MoreProfitability Ratio: Definition, Types, and Benefits
What is Profitability Ratio?Profitability ratios are the ratios that offer an insight into a company’s ability to generate profits based on expenses and other costs associated with the generation of revenues in a particular time period. It is important because it represents the final position of a company vis-a-vis its profits.Profitability ratios are very important for a company. The goal of all businesses in the world is to make profits. Without profit, a company cannot stay competitive in the market. Moreover, when there is a loss instead of a profit, the company should be aware of this. As profits form ...
Read MoreHow to Calculate Fixed Assets Turnover Ratio?
What is Fixed Assets Turnover Ratio?The fixed asset turnover ratio calculates a company’s ability to generate sales by using fixed asset investments. The items required to calculate fixed assets turnover are net sales which are divided by average net fixed assets. The ratio offers an insight into a company’s returns generated from the use of fixed assets, such as land, property, and machinery. In simple words, this ratio is used to judge the obtained amount of sales generated by the conversion of assets (into sales).Formula −The formula for Fixed Assets Turnover (FAT) is as follows −$$\mathrm{\mathrm{FAT}\:=\:\frac{\mathrm{Net \:Sales}}{\mathrm{Average\:Net\: Fixed \:Assets}}}$$Or$$\mathrm{\mathrm{FAT}\:=\:\frac{\mathrm{Net \:Sales}}{\mathrm{\left ( ...
Read MoreWhat is Net Working Capital Ratio?
Net working capital ratio shows how much of a company’s current liability can be met with the company’s current assets. The net working capital ratio is the measure of a company’s capability in meeting the obligations that must be paid within the foreseeable future. Therefore, it shows the liquidity that is available with the company to meet the liabilities.In other words, the net working capital ratio provides the stakeholders of a business with the idea of the business’s liquidity by showing how effective it is in paying off the current liabilities or the short-term debt using its current assets. The ...
Read MoreWhat are the Types of Activity Ratio?
What is Activity Ratio?The financial ratios that measure the utility of assets by converting assets into sales are known as activity ratios. These ratios are employed to measure the efficiency with which a firm manages and utilizes its assets. These ratios are also called turnover ratios because they imply how many times assets are turned over into sales within a specific period of time.The activity ratio is calculated by dividing the net sales by the working capital.Types of Activity RatiosThe main types of activity ratios are as follows −Inventory Turnover RatioDebtors Turnover RatioAssets Turnover RatiosLet us see each of the ...
Read MoreCash Ratio: Definition and Analysis
What is Cash Ratio?A cash ratio is the ratio that measures a company’s ability to pay off its current liabilities with cash and cash equivalents. The cash ratio is different from quick ratio and current ratio in the sense that the cash ratio considers current assets that are only cash and nothing else. Therefore, the cash ratio is more restrictive in nature than the current and the quick ratio.As the cash ratio looks only at cash, creditors. like to consider this ratio more than anything else. This ratio shows the ability of the company to shed off its current debt, ...
Read MoreWhat is a Long Straddle in Investment?
Long straddle involves call and put strategy for one particular bond, security or an asset and is utilized by traders as it has potential for maximum benefit and negligible risks. Under this method both long call and long put have the same stock price and expiration date.Important Points BrieflyAn option strategy known as a long straddle is acquiring both a long call and a long put on the same underlying asset with the same expiry date and strike price at the same time.The purpose of a long straddle is to benefit from a very big move in either direction by ...
Read MoreHow to Analyze Asset Turnover Ratio?
What is Asset Turnover Ratio?The assets turnover ratio explains the turnover of assets into sales. It is an efficiency ratio that implies a firm’s ability to generate sales from the assets. For this purpose, the net sales figure is compared with the total average assets.The total asset turnover ratio measures net sales as a percentage of assets to show how many sales are created from each rupee of assets.Example − An asset turnover ratio of 0.5 shows that each rupee of assets generates 50 paise of cash.How to Calculate Asset Turnover Ratio?The formula for calculating Asset Turnover is the following ...
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