Got a tricky question? Receive an answer from students like you! Try us!

Assignment: Understanding the Concepts - Essay Example

Only on StudentShare
Undergraduate
Essay
Finance & Accounting
Pages 4 (1004 words)

Summary

Understanding the Concepts in Finance and Accounting Name: Institution: Course: Tutor: Date: Imagine you are a small business owner. Thoroughly determine the financial ratios that are important to the business. Compare your ratios with those that are important to a manager of a larger corporation…

Extract of sample
Assignment: Understanding the Concepts

Solvency ratios help small business owners to determine ability of their business to pay long term liabilities (New South Wales Government, 2012). Debt ratios help compare the total liabilities to the total assets. Debt Ratio= Total Liabilities ? Total Assets For example if total liabilities=$150, 000, while total assets=$300,000 Therefore, Debt ratio=150,000? $300,000= 0.5 On the other hand, profitability ratios help small business owners to determine ability of their business to generate earnings based on the expenses incurred (New South Wales Government, 2012). Some of the profitability ratios include; Net profit margin and return on assets. Net profit margin may be determined as follows. Net Profit Margin= Earnings before income and tax (EBIT) ? Sales while on the other hand, Return On Assets= Earnings before income and tax EBIT) ? Total Assets. For example if EBIT=$800,000, Sales=$1,000,000 while total assets=$300,000 Return on Assets=800,000?$1,000,000=0.8 Return On Assets=$800,000?$300,000=2.6666 Connectively, liquidity ratios are important tools used by small business owners to determine the ability of their business to pay the outstanding debts (Charantimath, 2006). ...
Download paper
Not exactly what you need?

Related Essays

Understanding the Concepts
Concept of NPV/Payback Rule: The concept of NPV or Net Present Value of a particular investment represents the difference in its market value and its actual cost. The value of NPV is determined by estimating the present value of those cash flows that shall take place in the future. The cost is then deducted from the resultant to obtain the value of the NPV. According to the payback rule, a particular cutoff is selected and if the payback period is less than that cutoff, the project proves to be good to undertake. A payback period represents the time period when the cost of the project becomes…
4 pages (1004 words)
Finance Concepts Assignment
If the estimated life of this project is 5 years and the Required Rate of Return is 10%, then we can also calculate the NPV of this project. If the NPV is also a positive value then we can safely estimate that this project will carry a good return, and the initial investment would be covered in 5 years. (Shim & Siegel, 2000). 2. Whenever one wants to finance a business, he can go for either debt or equity financing. Debt Financing carries lots of advantages and disadvantages. The major advantage of this form of financing is that you do not lose the ownership of your company. The lender also…
4 pages (1004 words)
Understanding the Concepts
Understanding the Concepts …
4 pages (1004 words)
Understanding the concepts
The ideal ratio is 2:1. Inventory turnover ratio = cost of goods sold/ average inventory. It will be compared between firms to check the efficiency in inventory management. High inventory turnover ratio indicates sound inventory management. Return on capital employed = (profit before interest and tax/average capital employed)*100. It will be compared to check how much return the firms are earning in respect of the gross resources been deployed in the firm (Bull, 2007). 2. Explain the advantages and disadvantages of debt financing and why an organization would choose to issue stocks rather than…
4 pages (1004 words)
Understanding Concepts: Important financial ratios to a business
Understanding Concepts: Important financial ratios to a business …
4 pages (1004 words)
Assignment: Understanding the Concepts
It is of great significance that the ratios must be benchmarked against a standard in order for them to possess a meaning. Keeping that into account, the comparison is usually conducted between companies portraying same business and financial risks, between industries and between different time periods of the same company. The financial performance of the company over the last five years has been conducted in order to draw attention to various financial trends and significant changes over the period. The analysis is divided into three main categorize namely Profitability, Liquidity and…