Why and How to calculate current ratio

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 … Read More » "Why and How to calculate current ratio"

Income statement or Profit & loss account in financial statements

To present financial position for a period to stakeholders, companies prepare financial statements. It has four main parts: the balance sheet, income statement, cash flow and retained earnings / shareholders equity. In this article, we will be looking at the income statement: what it is, how its prepared and what is its purpose. Income statement … Read More » "Income statement or Profit & loss account in financial statements"

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 … Read More » "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 … Read More » "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 asset must equal to the total liabilities and stockholders equity in … Read More » "What is Shareholders’ equity on the balance sheet"

What is price to book ratio and how to calculate it

P/B or Price To Book Ratio is calculated to compare market price of a stock with its book value. Its calculated by dividing current market price of the share by the book value per share. Its also called as market-to-book ratio. Investors widely used P/B ratio to find out hidden gems which are low priced … Read More » "What is price to book 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 … Read More » "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 … Read More » "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 » "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 … Read More » "Fixed assets on the company’s balance sheet"