In the first part of the article, we understand the basic principles of activity-based costing. This article deal with the differences between the traditional costing approaches versus activity based costing. The differences are tabulated as follows:
Managers should be quite familiar with the two traditional costing systems namely absorption costing and marginal costing which are used to account or treat overhead costs. However, neither system is able to provide satisfactory information about overheads costs for managers to use in runing a business. Earlier, we know that management accounting information is used [...]
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Most managers would able to understand the term “break-even” which means there is no loss or gain. Similarly, in the cost-volume-profit relationship, break even point(BEP) is the LEVEL OF SALES AT WHICH PROFIT IS ZERO. At this point , there is NO gain or loss Refer to the below situation: Total ($) Per unit($) Sales [...]
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As described earlier, managers whether with financial or non-financial knowledge needs to at least understand the cost-volume-profit relationship to make decisions. The steps to remember the main element namely Contribution Margin is very simple & basic: Contribution Margin(CM) is left after variable expenses have been deducted CM amount will cover fixed expenses After covering fixed [...]
Cost-volume-profit relationships need to be understood by managers whether who have financial or non financial knowledge. This is because the cost-volume-profit relationship helps manager to make decision. It helps them to understand the interrelation between, cost, volume and profit in an organizatin by focusing interactions among the following elements: Price of the product Volume or [...]
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Normally, defensive internal or burn rate ratio is quite crucial to a start up company like the internet business.Most of the time, the start up companies are funded by venture capitalist. Their products might still need a lot of development before reaching the marketability state.
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Investors and analysts will normally deploy one particular market base accounting ratio which is the Market to Book ratio or Price-to-Book Value Ratio. This ratio expresses the relationship between a company’s value in the stock market and the net asset value as per the company’s balance sheet.
Let’s look at another useful market based ratio which is known as the Market value added ( MVA). MVA is the difference between the market value of the company and the total capital invested in the company.
In earlier articles we have gone through many ratios to assess the liquidity, profitability, market based ratio, activity of asset utilised,gearing level and cash sufficiency of a company. There is a very interesting ratio which can assist the managers to predict the probability of a company entering bankruptcy within a 2 year period. That ratio [...]
Continue reading about Financial Ratio To Predict A Company’s Bankruptcy Within a Two Years Period
[GO TO THE MAIN PAGE FOR ALL ARTICLES ON CASH FLOW] In Part A, we have looked at Cash sufficiency Financial ratio, let’s look at another cash flow ratio namely CASH FLOW EFFICIENCY FINANCIAL RATIO:
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