MBA Accounting

Continued with Part 1 on the financial accounting ratio on gearing/borrowing/leverage level of a company, we should also review another financial ratio called Capital Employed. Capital employed essentially measured what the shareholders own plus all the long term liabilities. This is crucial as too much borrowing based on short term will be precarious to the company’s financial health. (more…)

This article deals with the financial accounting ratio for assessing the LEVERAGE or gearing of a company Essentially, the Leverage Financial ratio should be able to measure the amounts of borrowed money being used by the firm.

Leverage Ratios are classified as either:

• Capitalization Ratios, focusing on how investments are financed; or
• Coverage Ratios, focusing on the ability to service the firm’s sources of financing. (more…)

The following financial accounting ratio is for the assessing the activity of assets deployed by the company. Essentially, the activity ratios measure the efficiency of managing or using of assets like

• total assets,
• accounts receivable,
• inventory, and
• accounts payable. (more…)

This section is on the using of financial accounting ratio for assessing the profitability of a company. The purpose of this type of financial ratio is to measure the bottom-line results or the profitability of the company.

Some typical major profitability ratios are:

• Gross profit & Net profit margin,
• Return on Total Assets,
• Return on Equity. (more…)

Let’s look at the financial ratio for assessing the liquidity of a company. Liquidity means the firm’s ability to satisfy its short-term obligations as they come due.

Two typical ratios are recommended:

• The Current Ratio, and

• The Quick (Acid-Test) Ratio. (more…)

As managers whether with or without financial accounting knowledge, it’s important to understand really what is financial accounting ratio analysis. We need to understand that like any analytical tools, it has benefits and of course certain limitation.

Append below are some frequently/commonly asked questions on Financial Accounting Ratio Analysis: (more…)

Unfortunately, when we analysis and interpret the financial statements, whether we as a financial managers or non-financial managers, there is a initial “set-back” for the need to memorise some standard formulas or financial ratios. Tabulate below from my other blogs, the various financial accounting ratios which are extremely useful to analyze the financial statement: (more…)

During the analyzing and interpreting a company’s Income Statement & Balance Sheet, managers might find it difficult to read the figures particularly when you are comparing companies of different sizes ( turnover, assets, depreciation,etc).

However, by using the Common Size methodology to analyze the financial statements (say the Income Statement and Balance Sheet) are extremely useful as it :- (more…)

This article deals with the following principal tools that we can used to analyze the financial statement: 

1. Comparative Financial Statements – Year to year changes
2. Index Number Trend Series
3. Specialized Analysis
4. Common - Size Financial Statements
5. Ratio Analysis (more…)