What's it: The acid test ratio is a liquidity ratio to measure whether a company has sufficient cash to cover current liabilities using its liquid assets. First, we add up cash and cash equivalents, short-term investments, and accounts
Financial Statement Analysis
Return on Invested Capital (ROIC): Calculation and Interpretation
What's it: Return on invested capital (ROIC) is a profitability ratio to measure how much profit is generated for every dollar invested in the company. We calculate it by dividing net income by the total invested capital, expressed as
Cash Flow From Operating Activities: Components, Importance, Calculation
What's it: Cash flow from operating activities is the incoming and outgoing money related to daily operation. Its examples include sales revenue, production expenses, employee salaries, marketing expenses, and general and administrative
Accounting Cycle: Meaning, and Stages
What's it: Accounting cycle refers to the set of processes for identifying, analyzing, and recording accounting events. The cycle starts with identifying transactions and ends with entering these transactions in the financial statements. During
Barter Transaction: Meaning, Examples, Accounting, Pros, Cons
What's it: A barter transaction refers to exchanging goods for goods without involving money as an intermediary. However, sometimes, transactions can also involve services, be it services with goods or services with services. One form of a
DuPont Analysis: Formula, Decomposition, Interpretation, Pros, Cons
What's it: DuPont analysis is an approach to breaking down the ratio of return on equity (ROE) into several specific ratios. It helps us know why a company's ROE is superior (inferior) to competitors. If we compare the components from year to
Fixed Assets Turnover Ratio: How to Calculate and Interpret
What's it: The fixed-asset-turnover ratio is a financial ratio to measure how productively and efficiently a company uses its fixed assets to generate revenue. Fixed assets include production machinery, equipment, motor vehicles,
Auditor: Meaning, Types, and Tasks
Who's it: An auditor is a party that carries out an official examination of the systems, accounts, legal records, and documents of a company. Their work and examinations cover various areas, such as finance, marketing, information technology, and
Cash Flow From Investing Activities: Meaning, Components, and Importance
What's it: Cash flow from investing activities is the money in and out associated with the company's long-term investment. It is one of three parts of the cash flow statement. Others are cash flows from operating activities and cash flows from
Cash Flow from Financing Activities: Meaning, Components
What's it: Cash flow from financing activities refers to the inflows and outflows of company money related to long-term financing. It consists of various transactions with suppliers of capital to get capital and pay back the capital.Cash
Deferred Tax Assets: Meaning, Examples
What's it: A deferred tax asset represents an inflow of future tax-related economic benefits. It eventually returns to business in the form of tax relief, reducing future taxable income.For example, a company pays taxes early before they are
Investment Property in Accounting: Meaning, Pros, Cons, Reporting
What's it: An investment property is a company's long-term investment in the property sector to obtain a rental income or capital appreciation. It can be an investment in the land and buildings. The company recognizes it as an asset if there are