Ratio Analysis and Interpretation: Efficiency Ratios

 To judge the overall financial health of a company, analysis of some ratios from the financial statements can prove to be useful. 

Ratio analysis is used to evaluate the relationship between financial statements. Various ratios can be used to identify trends over time for one company or to compare two or more companies. Additionally, ratio analysis helps you judge all the companies on the same metrics, despite the differences between their volumes of sales, the costs that they incur, etc.

Ratio analysis can be used for the following purposes:

• To evaluate performance over time
• To evaluate performance against industry average
• To evaluate performance against peers

There are four categories of ratios that will help you perform a critical evaluation and delve deeper into the figures mentioned in the financial statements. The categories are as follows:

1. Liquidity Ratio
2. Solvency Ratio
3. Profitability Ratio
4. Efficiency Ratio

Efficiency ratios:

Suppose you are the manager of an FMCG company, and you decide to start a variety of company products. This will require more machine goods to increase production and more money to meet the growing costs associated with diversity. 

This investment in machinery, i.e. fixed assets, and cash, i.e. current assets, is a major investment of the company. After investing so much money, it is important to understand how assets work.

Are you able to reap more benefits from your investment? Do you use your resources to the fullest?

Efficiency ratios also known as activity ratios, check how a company measures its operations or assets. The company is said to be on the right track if it can enjoy high profits and high efficiency.

There are multiple ratios within this category that can be used depending upon the purpose. The two main ratios are as follows:

Asset turnover ratio: It measures a company’s ability to use its assets.

• A lower number may indicate higher levels of unsold inventory.

• It is calculated using the following formula:

Asset turnover ratio	=	Total revenue
		Total assets

Inventory turnover ratio: It shows the number of times a business sells and replaces its entire batch of inventories.

• A low turnover indicates poor inventory management.

• It is calculated using the following formula:

Inventory turnover ratio	=	COGS
		Average inventory

where average inventory is (opening inventory (Year 0)+ closing inventory (Year 1))/2

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Ratio Analysis and Interpretation: Profitability Ratios

To judge the overall financial health of a company, analysis of some ratios from the financial statements can prove to be useful. 

Ratio analysis is used to evaluate the relationship between financial statements. Various ratios can be used to identify trends over time for one company or to compare two or more companies. Additionally, ratio analysis helps you judge all the companies on the same metrics, despite the differences between their volumes of sales, the costs that they incur, etc.

Ratio analysis can be used for the following purposes:

• To evaluate performance over time
• To evaluate performance against industry average
• To evaluate performance against peers

There are four categories of ratios that will help you perform a critical evaluation and delve deeper into the figures mentioned in the financial statements. The categories are as follows:

1. Liquidity Ratio
2. Solvency Ratio
3. Profitability Ratio
4. Efficiency Ratio

Profitability Ratios:

The main objective of almost every business enterprise is to earn profit, which is necessary for not only ensuring the company's growth but also its survival. Therefore, profitability becomes the foremost thing that you associate with when you analyse the performance of any company or organisation. However, for business managers and investors, profitability has a different context. They analyse profitability with various elements, such as cost of goods sold, capital employed in the business, against competitors etc. for decision making.

Profitability ratios measure a company's ability to generate profit. 

The various types of margin profitability ratios are as follows:

Gross profit margin: It checks the profit left in the revenue from operation after incurring all direct costs.

• This ratio is important because it helps you understand whether the company's sales are sufficient to cover the cost of goods sold. 

• It is calculated using the following formula:

Gross profit margin	=	Revenue from operation − Cost of goods sold
		Revenue from operation

 

Operating profit margin: It shows the profit left in the total income after incurring direct costs and additional operating expenses.

• It is calculated using the following formula

Operating profit margin	=	Operating profit (EBIT)
		Total revenue

Net profit margin: It shows a company’s ability to generate earnings after paying taxes and interest expense.

• The higher the ratio, the better it is for the company.

• It is calculated using the following formula

Net profit margin	=	Net profit
		Net revenue

Return on Assets (RoA): It checks the effectiveness of assets in generating sales and net profit. 

• It can be calculated using the following formula:

Return on Assets	=	Net profit
		Total assets

Return on Equity (RoE): It measures the amount of net profit that a company is generating per unit of investment in equity. It also measures a company’s ability to earn returns for equity investors.

• It is calculated using the following formula:

Return on Equity	=	Net profit
		Shareholders′ equity

• If RoE > Ke (cost of equity), then it means that the firm has added value.

Return on Capital Employed (RoCE): It shows how well a company uses its sources of capital to generate returns.

• Returns should always be higher than the rates at which the company borrows funds.

• It is calculated using the following formula:

Return on Capital Employed	=	Net operating profit (EBIT)
		(Shareholders′ equity + Long−term liabilities)

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Ratio Analysis and Interpretation: Solvency Ratios

To judge the overall financial health of a company, analysis of some ratios from the financial statements can prove to be useful. 

Ratio analysis is used to evaluate the relationship between financial statements. Various ratios can be used to identify trends over time for one company or to compare two or more companies. Additionally, ratio analysis helps you judge all the companies on the same metrics, despite the differences between their volumes of sales, the costs that they incur, etc.

Ratio analysis can be used for the following purposes:

• To evaluate performance over time
• To evaluate performance against industry average
• To evaluate performance against peers

There are four categories of ratios that will help you perform a critical evaluation and delve deeper into the figures mentioned in the financial statements. The categories are as follows:

1. Liquidity Ratio
2. Solvency Ratio
3. Profitability Ratio
4. Efficiency Ratio

Solvency ratios:

Suppose you are the manager of an FMCG company, and you decide to start a variety of company products that you need to borrow. Do you think any lender can invest in your company without analyzing the solvency status of your company?

Solvency ratios measure the ability of a company to fulfil its long-term obligations as and when they are due. 

What, according to you, will be the most important factor in the consideration of lenders?

However, lenders may want to invest in a company that is able to repay their interest rates on time and repay them in real time. But, how do they confirm this?

Much analysis is done before lenders make any investment. Part of the analysis involves calculating the company's solvency estimates.

The three types of solvency ratios are as follows:

Debt-to-equity ratio: This ratio measures how much debt the company has taken for every rupee of equity invested in the company.

A high ratio indicates that the company will use more debt to fund new projects. However, the inability to pay the interest obligation on a high debt may result in the company going insolvent.

It is  calculated using the following formula:

Debt	ratio =	Short−term debt + Long−term debt
Equity		Shareholders′ equity

Debt-to-asset ratio: This ratio measures how much asset is funded by debt and how much is funded by equity. 

The higher the ratio, the more alarming is the situation.

It is calculated using the following formula:

Debt	ratio =	Short−term debt+Long−term debt
Assets		Total assets

Interest coverage ratio: It measures the ability of the company to pay interest and interest expenses as and when they are due. It shows how many times the company's earnings before interest and taxes EBIT can cover its interest obligation.

The higher the ratio, the better it is for the company.

It is calculated using the following formula:

Interest coverage ratio	=	Earnings before interest and taxes (EBIT)
		Interest expense

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Ratio Analysis and Interpretation: Liquidity Ratios

To judge the overall financial health of a company, analysis of some ratios from the financial statements can prove to be useful. 

Ratio analysis is used to evaluate the relationship between financial statements. Various ratios can be used to identify trends over time for one company or to compare two or more companies. Additionally, ratio analysis helps you judge all the companies on the same metrics, despite the differences between their volumes of sales, the costs that they incur, etc.

Ratio analysis can be used for the following purposes:

• To evaluate performance over time
• To evaluate performance against industry average
• To evaluate performance against peers

There are four categories of ratios that will help you perform a critical evaluation and delve deeper into the figures mentioned in the financial statements. The categories are as follows:

1. Liquidity Ratio
2. Solvency Ratio
3. Profitability Ratio
4. Efficiency Ratio

Liquidity ratios:

Every company needs money to conduct its day-to-day operations. From small expenditures, such as stationery to big expenditures, such as corporate functions and meal packages, the company has to ensure that such operations run smoothly.

It is important to have some portion of the net worth in liquid assets. Liquid asset refers to the assets that can be quickly converted into cash as per requirement. The functions of liquidity ratio are as follows: 

• It assesses a company’s ability to pay off short-term debts using current assets.
• It assesses a company’s ability to procure loans.
• The higher the ratio, the better it is for the company. 

There are two types of liquidity ratios that are as follows: 

Current ratio: This metric is used to measure a company's short-term liquidity. In other words, it analyses whether a company is able to pay its short-term borrowings using its current assets. 

It is calculated using the following formula:

Current ratio = current assets / current liability

The higher the ratio, the better it is for the company.

Quick ratio: It measures a company’s ability to meet its short-term obligations using its most liquid assets.

The only difference between quick ratio and current ratio is that quick ratio excludes inventory from the current assets, as raw material first needs to be converted into finished goods, which further needs to be converted into cash. 

It is calculated using the following formula:

Quick ratio = (Cash and cash equivalents + Short-term investments + current receivables)/Current liabilities 

Note: The formula may differ slightly based on the situation. However the logic behind the quick ratio, "a company’s ability to meet its short-term obligations using its most liquid assets", remains the same. The formula to calculate Quick ratio is:: 

Quick Ratio = (Current investments + Trade receivables + Cash and  cash equivalents + Short term loans and advances + Other current assets) / Current liabilities

The higher the ratio, the better it is for the company.

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Accounting Fundamentals: Income Statement

Financial statements are one of the most reliable data points to assess a company's financial position and performance. Companies listed on the stock exchange provide quarterly financial statements such as, Balance Sheet, Profit and Loss (income) Statement, Statement of Cash flow

Profit and Loss (income) Statement:

The income statement, also known as the profit and loss statement, tells you about the income and expenses that a company has incurred over a period of one financial year. 

Note: While calculating the gross profit, it is more accurate to consider the 'total operating revenue' instead of 'total revenue', because 'Other income' may skew the 'total revenue' on certain years.

Revenue: The amount earned by a company after selling its core products and services.

Expense: The amount spent by a company to conduct business. A key line item inside expenses is cost of goods sold (COGS), which is the cost incurred in the production of the goods or services sold.

Gross profit: Assesses the efficiency of a company in utilising its labour and raw materials. It is calculated as follows:

Gross profit = Sales revenue - Cost of goods sold (COGS)

Operating profit (EBIT): Shows the profit earned by a business from its core operations before interest and tax expenses. It is calculated as follows:

Operating profit = Sales revenue - Cost of goods sold (COGS) - Operating expenses

Net profit: It is also known as "Net Income" or Profit after tax (PAT). It refers to the income earned by a company after covering all operating and non-operating expenses. It is calculated as follows:

Net profit =  Total revenue - Total expenses

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Accounting Fundamentals: Balance Sheet

Financial statements are one of the most reliable data points to assess a company's financial position and performance. Companies listed on the stock exchange provide quarterly financial statements such as, Balance Sheet, Profit and Loss (income) Statement, Statement of Cash flow

Balance Sheet

Basic accounting principles such as assets, liability, equity, income and expenses are linked. The link between these results in basic financial statements.

The balance sheet is the first financial statement you will read. Gives you a summary of the company's financial situation over time.

The three stages of construction of a balance sheet are:

• Assets
• Liability
• Equity

A balance sheet tells you about the financial position of a company at a certain point of time. A typical balance sheet consists of ‘Assets’ on one side and ‘Liability and Equity’ on the other side. The relationship between these elements is called the accounting equation, which is given as:

Total Assets = Total Liability + Total Equity

Assets:

The asset side consists of current assets and non-current assets. You saw that non-current assets include the following line items:

Tangible assets: Assets that have a physical form

Intangible assets: Assets that lack a physical form

Capital work-in-progress: Assets that are still in their development stage

Other assets: Assets such as office vehicles and laptops

Non-current investments: Long-term investments

Long-term loans and advances: Long-term loans given to other companies

Other non-current assets: Capital advances paid by the company

and, Current assets include the following line items:

Current investment: Short-term investments

Inventories: Stocks of unsold products or unused raw materials

Trade receivables: Funds that customers owe the company

Cash and cash equivalent: Hard cash or money in a bank

Short-term loans and advances: Short-term loans given by the company

Other current assets: Other assets that can be converted into cash within a year.

Equity:

Equity (also known as shareholders’ funds) consists of two major line items:

Share capital: Amounts received from the owners or investors of the company.

Retained earnings: Undistributed or accumulated profits of the company over the years. This is also known as reserve and surplus.

Liability: It is what company owes to it's owners, investors.

Non-current liabilities include the following line items:

Long-term borrowings: Long-term loans, usually with a term of 10+ years

Deferred tax liabilities: Tax liabilities to be paid over a few years

Long-term provisions: Created to set aside money for employee benefits such as leave encashments and provident funds

 

Current liabilities include the following line items:

Short-term borrowings: Bank loans that are due within a 12-month period

Trade payables: Bills against credit purchases made by the company 

Other current liabilities: Other liabilities that are due within 12 months.  

Short-term provisions: Money set aside to meet short-term liabilities.

**Goodwill can appear as a line item on the balance sheet only if the company pays to receive it as part of the acquisition of the business! If 'goodwill' is produced internally, it cannot be displayed as an asset on the balance sheet.

 

Service companies (like infosys) don’t have a list of names or ongoing work as a line item. This is because they do not provide tangible  products. Instead, they have a line item known as ‘unbilled revenue’, which refers to all ongoing and unfinished work by a service company.

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Business Framework no. 2: Marketing - Perceptual Mapping

An overview of the framework, every Framework contains:

• The purpose of the framework,
• A brief overview of the outline,
• Case example - to illustrate the use of a frame in the real world
• Conclusion - take-out key

A Perceptual map is a tool used to identify a customer’s opinion about a product or service, in order to analyze product conditions in the market and identify potential market gaps translated into a business opportunity. Competitive market analysis can be based on both or additional features which may be quantity or quality in nature.

Case example:

Ab Inbev, the world's largest brewery, is well-known for its brewery. However, that has always been the case has seen a decline in India's income due to fierce competition. To analyze and reduce situation, Ab Inbev decided to use a Perceptual map.

• Ab Inbev conducted market research to understand customer preferences and what he could do they found that the Indian market prefers the taste of heavy beer.
• With this market research and map competitors, you find that it is small competition in the heavy and premium category
• Based on the map effect, it has decided to introduce a type of heavy beer: Budweiser Premium and Budweiser Magnum.

Conclusion:

Businesses can use the Perceptual map to test themselves on customer feedback competition and staying relevant in the market by isolating ourselves from competitors.

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Business Framework no. 1: Marketing - STP Framework

 

An overview of the framework, every Framework contains:

• The purpose of the framework,
• A brief overview of the outline,
• Case example - to illustrate the use of a frame in the real world
• Conclusion - take-out key

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STP Framework: The STP model (Separation, Identification, Position) will help you choose and get closer parts of multiple customers. It is a method used to find the right part of the customer, create and refine marketing strategies, and invest in effective marketing resources.

Separation: One product cannot meet the needs of an individual. So, it is important identify different types of clients and divide them into responsive 'segments' in the same way about marketing activities, to help them successfully with the right product. Divisions can be made on the basis of many factors such as location, behavior, etc.

Identification: Identification of posts, ‘targeted’ parts of companies can provide. Identifying is the process of selecting the right customer component based on it attraction, influence, and company resources. Many segments can directed at a given time.

Position: Position is the process of developing a vision in the mind of the target section about a product or service. This step took place to attract attention a specific component of a product or service, which may lead to a purchase decision.

Case Example:

Daniel & Co. they produce a soap of beauty and fragrance. The company uses essential oils, flower components and small amounts of cleaning chemicals. Due to the intense competition for established soap brand, the company loses money due to low sales.

To make sure it delivers the right product, in the right category, in the right way, decided to use the STP framework.

Separation: In conducting further research, focusing on a variety of factors, the book of Daniel & Co. divide its market into the following categories-

• Young Adults (40%) - College students who like to try new, fashionable, economical products.
• Middle Ages (40%) - Active people who taste the best, natural products.
• The Oldest and Most Wise (20%) - People in leadership positions who use luxury products.

Identification: Daniel & Co. tagged part of the 'Middle Ages' as the company's current products

fits well in this section. Additionally, the section is attractive because it is large in size.

Position: Daniel & Co. put themselves in the right place to sell premium eco-friendly soaps.

Conclusion:

Companies categorize the needs of the customers and the services available. Their target part

they can change over time, therefore, they need to change their marketing strategies continuously.

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50 Business Frameworks

MARKETING

1. STP Framework 
2. Perceptual Mapping
3. Product Life Cycle
4. 4 Ps of Marketing
5. AIDA Model

BUSINESS COMMUNICATION

1. 7Cs of Communication
2. ATOM Framework
3. OSCRE Framework of Storytelling
4. SOLER Model of Active Listening
5. The Rhetorical Triangle

ACCOUNTING AND FINANCE

1. Accounting Terminologies
2. Financial Statements
3. Time Value of Money
4. Working Capitals
5. Accounting Ratios

BUSINESS ECONOMICS 

1. Laws of Supply & Demand and Market Equilibrium
2. Price Elasticity of Supply and Demand
3. Market Structures 
4. Gross National Product
5. Monetary and Fiscal Policy

SALES AND DISTRIBUTION SPIN 

1. Selling Process Framework
2. Elevator Pitch
3. Sales Performance Pyramid
4. Distributor Lifecycle Management
5. Channel Evaluation

ORGANISATIONAL BEHAVIOUR 

1. Johari Window
2. Maslow's Hierarchy Of Needs
3. Expectancy Theory
4. OCEAN Framework
5. Reinforcement Theory 

OPERATIONS AND SUPPLY CHAIN

1. Gantt Chart
2. Economic Order Quantity
3. Bullwhip Effect
4. Six Sigma Effect
5. Bottleneck Matrix

LEADERSHIP AND DECISION MAKING

1. Leadership Styles
2. Rational Choice Theory
3. Belbin Team Roles Framework
4. Cynefin Framework
5. Iceberg model

BUSINESS STRATEGY

1. Mckinsey's Seven S Model
2. SWOT Analysis
3. SMART Framework
4. Value Discipline Model
5. Porter's Five Forces
6. McKinsey's Three Horizons of Growth
7. VRIO Framework
8. BCG Matrix
9. ANSOFF Matrix
10. PESTLE Framework

Accounting Conventions

 

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One basic purpose of preparing financial statements is to compare statements over the years with competitors ’. For these statements to be comparable, the accounting process followed by companies must be consistent and consistent. 

Accounting Conventions set out certain guidelines that must be followed when preparing financial statements. This ensures consistency and improves the use of financial statements. Below are few of such accounting conventions:

Separate entity concept: In this sense, a business should be considered as a separate unit from its owner. Therefore, you should be responsible for the exchange of resources between the business and its owner.

Historical cost concept: According to this concept, most, but not all, assets should be recorded at cost at which they were bought.

Money measurement concept: Accounting records only those amounts that can be measured in terms of cash.

Going concern concept: The business will continue to operate indefinitely.

Conservatism concept: A company should record all expected losses and costs, but ignore all expected / unfulfilled profits.

Material concept: Any event that could influence the decision of an experienced investor is considered important, and material assets should be disclosed. Note: All financial transactions are recorded in the ledger, regardless of the material; the concept of material is for research purposes only.

Consistency concept: The company must be consistent in its accounting policies and procedures throughout the years.

Substance over form: All items or issues that may affect user judgment should be disclosed although this is not a requirement in the form. This, in fact, refers to something over the form.

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Accounting Terms

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Few accounting principles:

Assets: Corporate economic resources. They can be divided into the following two types:

• Non-current assets: Non-convertible assets in cash within 12 months. They are also known as                                      durable goods. They are of the following two types:

                Tangible non-current assets: These assets have a physical form.

                Intangible non-current assets: These assets do not have a physical form.

• Current assets: Assets that can be converted into cash and cash equivalents within 12 months or                            one working cycle.

Liability: Economic services a company that owes money to others. They can be divided into the following two types:

• Non-current liabilities: Liabilities that are due and repaid after one financial year or operating cycle, that is, more than 12 months.

• Current liabilities: Debts to be repaid and repaid within one financial year or operating cycle, that is, within 12 months.

Equity: The amount invested by the developers or owners of the company. It also includes stored business benefits.

Revenue: Refers to the total amount of revenue received after the sale of goods or services.

Expenses: Expenses incurred while conducting business operations. It can be divided into the following types:

• Direct costs: Direct costs incurred in producing goods or providing services. They are equal to the volume of the product being produced.

• Indirect costs: Indirect costs of producing goods or providing services.

Gains and losses: Recurring transactions due to differences in proceeds from the sale of assets and the amount recorded in the ledger.

        Profits and losses = Profit by sale - Amount in account books

Cash basis of accounting: Expenses and Revenue are recorded when cash is received or paid.

Accrued basis of accounting: Revenue is recorded when received (that is, when a product is delivered / service is delivered). Similarly, costs are recorded when they are made.

Example:

Suppose you bought equipment worth Rs 20,000 in October for cash. According to both accrual and cash basis of accounting, these expenses will be recorded in October itself.

Now, suppose you bought a credit card worth Rs 50,000 in October. The actual cost of these supplies needs to be paid in December. On a cash basis of accounting, the transaction will be recorded in December when the actual cash outflows occur. However, on an accrual basis of accounting, this transaction will be recorded in October itself.

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Glossary for Accounting and Finance

 

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Hi All,

Below is a list of relevant terms related to accounting and finance world.

Account Payable	Amount due for payment to a supplier of goods or services from whom raw materials are purchased on credit.
Account Receivable	Amount due from a customer to whom goods are sold on credit.
Accounting	The process of identifying, measuring and communicating financial information about an entity to permit informed judgements and decisions by users of the information.
Accounting Equation	Assets = Liability + Equity
Accounting Period	Time period for which financial statements are prepared (e.g. month, quarter, year).
Accruals Basis Of Accounting	Revenues are recorded once they are earned and expenses are recorded when they are incurred instead of when the actual cash flows occur.
Administrative Expenses	These include expenditure on items such as rent, warehouse costs, printing and stationary, freight charges, etc.
Amortisation	It refers to the fall in value of intangible assets with the passage of time.
Adjusted Present Value (APV)	APV = Net Present Value + additional financial benefits and costs resulting from funding a project/company using debt.
Assets	These are economic resources that are owned by the company.
Balance Sheet	It tells you about the financial position of a company at a certain point of time.
Capital Expenditure	It refers to the amount spent by a company on acquiring fixed assets.
Capital Rationing	It involves deploying the limited capital into a combination of available projects which will maximize shareholder’s return.
Capital Structure	Debt and equity are together known as the capital structure of a company.
Cash Basis Of Accounting	Revenue and expenses are recorded at the time of movement of cash, i.e. when cash is received or paid.
Cash Conversion Cycle (CCC)	It represents the number of days it takes for a firm to convert its investment in inventory to cash.
Cash Flow Statement	It provides information about a company’s cash receipts and cash payments during an accounting period.
Compounding	It refers to the process of converting the present value of a given amount of money to its future value
Cost Of Debt	The amount of interest that a company pays on debt is called the cost of debt.
Cost Of Equity	The charges paid against the owner’s fund is known as the cost of equity
Cost Of Goods Sold	It refers to the cost incurred in the production of the goods or services sold
Current Asset	These can be converted into cash and cash equivalents within 12 months or one operating cycle
Current Liabilities	These are those liabilities that are due and payable within one financial year or operating cycle, i.e., within 12 months.
Days Inventory Outstanding (DIO)	This metric helps in calculating the number of days that a company takes to sell off its inventory.
Days Payable Outstanding (DPO)	This metric helps in calculating the number of days that a company takes to pay off its suppliers from whom raw materials are purchased on credit.
Days Sales Outstanding (DSO)	This metric helps calculate the number of days that a company takes to collect money from customers who buy goods on credit.
Debt	Borrowed funds are known as debt
Depreciation	It refers to wear and tear of an asset due to the usage of that asset.
Direct Costs	These costs are incurred directly for manufacturing goods or providing services.
Discounting	It refers to the process of arriving at the present value of an investment using the interest rate that it can earn
Dividend	Returns given to a shareholder for investment made in the company
EBIT	Operating profit=Revenue−COGS−Operating expenses
EBITDA	EBITDA = Revenue−COGS−Operating expenses(excluding depreciation and amortisation)
Employee Benefit Expenses	These include expenditure in the form of salaries, bonuses and staff welfare expenses
Equity	It refers to the amount invested by the promoters or owners of a company.
Expense	It refers to the cost incurred while running business operations.
Extraordinary Gains Or Losses	These are expenditures or income from non-operating activities
Finance Cost	These are expenditures that are incurred in the interest paid against any debt taken.
Financial Risk	These risks are related to the financial aspect of the company and its projects
Financial Statements	It comprises the balance sheet, income statement and cash flow statement of a company.
Financing Activities	Activities undertaken for raising funds for the company.
Future Value	This refers to the value of money after a certain period of time, depending on the rate of interest.
Gains And Losses	These are non-recurring transactions that are made owing to the difference in the proceeds from the sale of an asset and the value recorded in the book of accounts.
Gross Profit	Gross profit=Revenue−Cost of goods sold
Impairment	It refers to the fall in value of an asset based on the difference between the recorded value of the asset in the books of account today and the most likely realisable value of the asset if sold today.
Income Statement	It tells you about the income and expenses that your firm has incurred over a period of one financial year.
Indirect Costs	These costs are incurred indirectly for manufacturing goods or providing services.
Intangible Non-current Asset	These assets lack a physical form, i.e., they cannot be seen or touched.
Interest	It refers to a return given to the lenders of capital as a reward for extending a loan to the company.
Internal Rate Of Return	IRR is equivalent to the rate of discounting for which the NPV is zero.
Inventory	It refers to the stock of unsold goods lying with the company
Investing Activities	It refers to the purchase or sale of long term assets of a company
Liability	These are economic resources that a company owes to others.
Market Risk	These risks occur due to a sudden change in market conditions in which your firm operates.
Market Value	The price at which an asset can be sold today.
Natural Risk	These risks are associated with natural disasters.
Net Present Value	The NPV technique measures the increase in an investor's wealth resulting from a particular investment. NPV=Total present value of future cash flows −Initial investment
Net Profit/PAT	Net profit=Total revenue−Total expense
Non-current Assets/Fixed Assets	These assets are expected to provide benefits or generate revenue for a period greater than 12 months and cannot be converted into cash within 12 months
Non-current Liabilities	These are those liabilities that are due and payable after one financial year or operating cycle, i.e., greater than 12 months.
Operating Activities	Operating activities are activities that are at the core of a company's day-to-day business.
Operating Risk	These risks affect the operational activities of a project.
Payback Period	It refers to the time taken to recover the full cost of the investment.
Perpetuity	When a stream of cash flows continues indefinitely
Present Value	This refers to the current value of money.
Profitability Index	It refers to the metric that helps in measuring how big is the value added in comparison to the initial investment when a new project is taken up.
Provision	It refers to an amount of money kept aside in order to meet contingent obligations of an enterprise.
Real Options	Real options are choices that are embedded in a project at year 0, but can be executed at a later stage of the project.
Regulatory Risk	These risks occur due to the environment in which they are operating.
Reserves And Surplus/Retained Earnings	Undistributed or accumulated profits of the company over the years.
Revenue	It refers to the final amount of money received after selling goods or services.
Tangible Assets	These assets have a physical form, i.e., they can be seen and touched.
Tax Expense	These are the amounts that are paid as corporate tax to the government on the profit made by the company.
Tax Shield	It refers to the reduction in taxes caused by taking on debt.
Terminal Value	The terminal value reflects the value of all the future cash flows that are not considered in the projected cash flow period
Vertical Analysis	It refers to a statement where each expense item is expressed as a percentage of a base item. The base item can be “revenue” or “total assets”.
Weighted Average Cost Of Capital	(Weight of debt x cost of debt) + (Weight of equity x cost of equity)
Working Capital	Current assets - current liability

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