The term "flow" means change or movement of funds in terms of net working capital.It means inflow or increase and outflow of decrease of fund, ie. net working capital, as a result of certain financial transactions that have taken place in the firm during the specific period.All financial transactions finally affect the balance sheet, but they all do not affect the net working capital of the firm.There are certain class of transactions which cause an increase of funds, while the other cause a decrease of funds in the firm.Therefore,identifying changes...
Tuesday, 30 March 2010
Concept Of "Funds" In Funds Flow Statement
Posted on 18:46 by Unknown
The term "funds" has more than one meaning. In its narrow sense,the term funds is used to mean cash, at most people think that funds and cash are the same thing. In funds flow statement, however cash is not used as a basis,because it concentrates only on changes in a single asset, cash.Instead,the term funds is used in the broader sense of working capital,as it focuses on changes in broader category of working capital.Therefore the term funds is used to mean working capital in the funds flow statement.However, there are two concepts of working...
Saturday, 6 March 2010
Importance Of Funds Flow Statement
Posted on 17:18 by Unknown
Funds flow statement is an important financial tool, which analyze the changes in financial position of a firm showing the sources and applications of its funds. It provides useful information about the firm's operating, financing and investing activities during a particular period. The following points highlight the importance of funds flow statement.1. Funds flow statement helps in identifying the change in level of current assets investment and current liabilities financing.2. Funds flow statement helps in analyzing the changes in working capital...
Concept Of Statement Of Changes In Financial Position
Posted on 02:07 by Unknown
A joint stock company is required to prepare and publish financial statements annually . The financial statement shows the financial affairs of the company. The financial statements include statement of income, statement of retained earnings and balance sheet.* Statement of income : It is a summarized statement of revenues earned and expenses incurred by the company for a specific period of time. It reports the results of business operations in terms of net profit or loss.* Statement of retained earnings : This statement is also called profit and...
Limitations Of Ratio Analysis
Posted on 01:51 by Unknown
Although ratio analysis is very important tool to judge the company's performance , following are the limitations of it.1. Ratios are tools of quantitative analysis, which ignore qualitative points of view.2. Ratios are generally distorted by inflation.3. Ratios give false result, if they are calculated from incorrect accounting data.4. Ratios are calculated on the basis of past data. Therefore, they do not provide complete information for future forecasting.5. Ratios may be misleading, if they are based on false or window-dressed accounting i...
Concept And Types Of Profitability Ratios
Posted on 01:39 by Unknown
The main objective of a company is to earn profit. Profit is both a means and end to the company. Therefore, profitability shows the overall efficiency of the company. Profitability ratios are the measure of its overall efficiency. Generally, profitability ratios can be calculated in term of company's sale, investments and earnings and dividends. The following are the main types of profitability ratios.1.Profitability in relation to sales*Gross profit margin*Net profit margin2. Profitability in relation to investment*Return on assets (ROA)*Return...
Tuesday, 2 March 2010
Concept And Types Of Turnover Ratios
Posted on 23:19 by Unknown
Turnover ratios are also known as activity or efficiency ratios. The total fund raised by the company are invested in acquiring various assets for its operations. The assets are acquired to generate the sales revenue and the position of profit depends upon the value of sales. Turnover ratios establish the relationship of sales with various assets. Turnover ratios are expressed in integers or times rather than as a percentage or proportion. The turnover ratios are mostly computed to measure the efficiency.Types Of Turnover Ratios1. Inventory turnover...
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