Financial Terms Essay
Capitalization: Adding the cost of acquiring the asset to the cost of the asset. http://www.sharetipsinfo.com/capitalize-capitalization.html Acid Test Ratio:
Purchase Accounting: http://accounting-financial-tax.com/2008/12/purchasing-objectives-its-impact-on-profitability/
Forward Bidding- When we invite bid from others for auction. The settled amount will reach maximum value here. …show more content…
Working Capital: =CA-CL. A negative working implies one has enough short term assets to cover its short term debts.
Financial Leverage: Degree to which a company uses debt and equity. A high debt financing value (high DER) implies high financial leverage => higher interest payments which affects the company => Reduces EPS (= (Net Income-Dividends)/# Shares)
Net income= net profits= net earnings= PAT= Bottom line
Degree of Financial Leverage= (% change in EPS)/(% change in EBIT)
Raise capital by Stock issue => Lowers FL (& share will be diluted) http://smallbusiness.chron.com/difference-between-operating-vs-financial-leverage-67505.html Operating Leverage: OL= FC/Total Costs
Higher value implies that as we ramp up the production one will gain by reduced FC (due to spreading) => Good when Demand is high
But, in recessionary conditions, High OL => Bad for biz as FC will be high due to production cuts.
Degree of OL= (% change in EBIT)/ (% Change in Sales)
Asset Turnover Ratio: The amount of sales generated per dollar of assets