Finance Management Articles - Page 19 of 101

Definition of Earning PowerA company’s ability to generate profit from its operation is known as the company’s earning power. In other words, earning power is a company’s capability to generate profit from operations. The generation of profit is compared against the goods and services offered in a particular industry to check the earning power of different companies. Investors usually check the earning power of a company to see whether a company is worth to put the investment in they want in that company.Earnings power is the company’s capability to derive profits from the invested capital in it by the investors. ... Read More

What is Earnings Yield Ratio?Earnings Yield is the reciprocal of Price-Earnings, and it is expressed as a percentage. Earnings yield is the earnings per share divided by the market price of each share multiplied by 100. Earnings yield ratio offers an insight to the earning power of a share. If the earnings yield of a share is 5%, it means that there is an earning of Rs 5 per 100 rupees of shares owned by an investor.Earnings yield offers investors to check the future earnings of not only shares, but also of bonds, debentures and bank fixed deposits etc.For example, ... Read More

There are a lot of financial ratios to measure the relationships between different financial items, and they are useful for various types of calculations. Some ratios are more applicable to measure specific tasks and hence these ratios can be specifically applied to measure specific relationships.For the shareholders who are mostly interested in investing their money in profitable stocks, the following are the ratios that have proved to be most useful.Net Working Capital RatioWorking capital shows a company’s capacity to pay its liabilities with its current assets. Working capital measures the liquidity of a company. In other words, working capital is ... Read More

What is Profit?Profit is the difference between revenues and expenses, and it is the ultimate aim and output of a company. Profit is the fuel that propels businesses. A company must earn enough profits to sustain and grow. In order to make an expansion too, a company must earn enough profits so that it can accumulate earnings and invest them in an expansion project. Investors and lenders invest money in a company to get profitable returns. Without profit, no company can last for a long period of time. So, it is an item no company should avoid.However, it is inappropriate ... Read More

Although Profit After-Tax (PAT) and Net Asset seem to be the same, there is a difference between the two. PAT is related more to the operational efficiency of a firm while net assets are related to the value of assets.The two terms, however, can be misleading. So, in order to make it simpler, let us check the meaning of the two terms in detail.Profit After-Tax (PAT)PAT is the amount a company retains after paying all the non-operating and operating taxes, expenses, and liabilities. This is the profit that is distributed among the shareholders of the company. Alternately, a company may ... Read More

What is Return on Investment?The profitability ratio related to investment is Return on Investment (ROI). Return on Investment is the ratio that is sometimes expressed as Profit After Tax (PAT) divided by Investment. The investment represents the pool of funds accumulated by components invested by shareholders and lenders.So, the most common assumption of ROI is given as follows −$$\mathrm{ROI\, =\, \frac{PAT}{Investment}}$$However, it is incorrect to use PAT in measuring returns on Income because PAT is the residue income of shareholders. It is not the overall amount of funds invested by the lenders and general shareholders.Also, PAT is affected by a ... Read More

What is Net Current Assets Turnover Ratio?The net current assets turnover ratio expresses the ability of a company’s working capital in promoting the sales of the company. Net current assets are also known as working capital. The ratio shows to what extent the day-to-day expenses fuel the net sales of a company. In other words, the ratio is an expression of net sales that occur per unit of net current assets.$$\mathrm{\mathrm{Net\: current\: assets\: turnover \:ratio}\:=\:\frac{\mathrm{Net\: Sales}}{\mathrm{Net\: Current\: Assets}}}$$Here, Net Current Assets = Current assets - Current LiabilitiesNet sales - Total Sales - Total returns (Inwards)Calculation of Net Current Assets TurnoverBy ... Read More

Profit can be measured in a number of ways. For example, Gross Profit is the profit that is the difference between the manufacturing cost of goods sold and sales. This is called Earnings Before Interest, Depreciation, Taxes, and Interests Amortization (EBIDTA) by many firms. However, many other companies calculate net income or Profit After Tax (PAT). As taxes cannot be controlled, to negate their influence Profit Before Tax (PBT) is calculated.Investors, however, use operating profit or Earnings Before Interest and Taxes (EBIT) as a measure of profitability. Moreover, on an after-tax basis, Net Operating Profit After Tax (NOPAT) is also calculated by ... Read More

What is the Asset Turnover Ratio?The asset turnover ratio is a ratio that measures the ability of a firm to generate sales depending on its assets. It is calculated using net sales and average total assets. In other words, the net asset turnover ratio shows the efficiency of a company to convert its assets into sales.As asset turnover is calculated as net sales of a percentage of assets, it shows how much sales have been made for each rupee of assets.Example −Suppose a company ‘ABC Ltd’ is into the manufacturing of mobile phones and is in need for funding for ... Read More

What is Interval Ratio?The Interval Ratio or Interval Measure is the ratio that calculates the funds that a company required to run its operations. This ratio helps the companies survive by letting them know how much funds they will require for a particular project on a long-term basis.In other words, the interval ratio measure shows the number of days that a company will survive with the funds it has in its hands.The interval ratio can help a company plan for the future in advance. By knowing how long a company can run without accessing any other source of funding, the ... Read More