Investors judge a company by using various methods to know whether a company has adequate working capital. In this regard, current ratio is more useful than the net working capital. Current ratio (CR) is calculated by dividing current asset (CA) by current liabilities (CL). CR = CA / CL What is Current Assets and Current Liabilities To classify a particular asset as … [Read more...] about Why and How to calculate current ratio
Archives for January 2019
Understanding the income statement of a company
Financial statements are prepared and reported by all listed companies to present the financial position for a period to the stakeholders. Financial statements of a company have five main parts: the balance sheet, income statement, cash flow statement, notes to accounts and shareholders / owner’s equity. In this article, we will be looking at the income statement. You will … [Read more...] about Understanding the income statement of a company
What is Operating cycle of a business
In a business, operating cycle is the length of time a company takes starting from the time when cash is invested in goods and services to the time that investment produces cash. This means in a business, it comprises three phases: Purchase raw materials in cash or credit and produce goods.Sell goods for cash or in credit.Collect cash from credit sales, settle short-term … [Read more...] about What is Operating cycle of a business
How cost of goods sold or COGS is calculated
Cost of goods sold is shown in the income statement of a company which is into manufacturing, wholesaling, retailing or into similar kind of business. Cost of goods sold or COGS is calculated by taking all direct expenses that a company has incurred to manufacture its product. After calculating COGS, you need to offset it against revenue to find out gross profit. In this … [Read more...] about How cost of goods sold or COGS is calculated
What is Shareholders’ equity on the balance sheet
A company’s balance sheet has three major sections, assets, liabilities and stockholders’ equity. Liability represents the total debt of the company and owner's capital represents shareholders’ ownership. Liabilities and owner's capital are the two major sources of financing the assets of a company. Total assets must equal the total liabilities and stockholders equity in … [Read more...] about What is Shareholders’ equity on the balance sheet
What is price to book value ratio and how to calculate it
Many investors believe price to book ratio is a important factor when looking for a bargain in the market. Price To Book Ratio is calculated to compare market price of a stock with its book value. Price to Book (P/B) ratio is calculated by dividing current market price of the stock by the book value per share. Its also called as market-to-book ratio. Investors widely … [Read more...] about What is price to book value ratio and how to calculate it
Accounts payable on the balance sheet
Accounts payable is the amount that the company owes to its creditors or outsiders from whom it has brought goods or services. Total amount of accounts payable as on the date of balance sheet is classified under the head current liabilities. It arises because of the time lag between receipt of goods, supplies or services and the payment of them. This time lag is generally … [Read more...] about Accounts payable on the balance sheet
Beginner’s Guide to Understanding Assets on the Balance Sheet
On the balance sheet you have three major components: assets, liabilities and owner's equity. In this article, we will understand the term asset on the balance sheet and its components. An asset is a resource controlled by the enterprise as a result of past events from which future economic benefits are expected to flow to the company. In simplified terms, Assets are simply … [Read more...] about Beginner’s Guide to Understanding Assets on the Balance Sheet
How to calculate Working capital of an organisation
Working capital is the difference between company’s total current asset and the total current liabilities. In simplified terms, It's the amount of current asset that is left out if all current liabilities are paid. Working Capital = Current Assets - Current Liabilities Bankers, financial institutions and other creditors compute working capital to know the short-term … [Read more...] about How to calculate Working capital of an organisation
Fixed assets on the company’s balance sheet
Asset held with the intention of being used for the purpose of producing goods or providing services and is not held for sale in the normal course of business is known as fixed assets. Fixed assets are shown on the balance sheet at its historical cost less accumulated depreciation. Cost of fixed assets Cost of fixed asset is the purchase price and any thing that is … [Read more...] about Fixed assets on the company’s balance sheet