Article Categories
- All Categories
-
Data Structure
-
Networking
-
RDBMS
-
Operating System
-
Java
-
MS Excel
-
iOS
-
HTML
-
CSS
-
Android
-
Python
-
C Programming
-
C++
-
C#
-
MongoDB
-
MySQL
-
Javascript
-
PHP
Finance Management Articles
Page 37 of 96
What are the Types of Financial Risks?
Financial risk refers to a condition where a company with a certain amount of debt will fail to repay them in a given time period. In other words, financial risk means the risk of losing money by investing it in a lossmaking company.Investors usually remain averse to risky companies and hence calculating the financial risk is of paramount importance to them. In general, the more debt a company has, the more will be its financial risk.Types of Financial RisksFinancial risks can lead to loss of shareholders’ income, as the money is lost while carrying on with a loss-making company. However, ...
Read MoreFactors that Determine the Capital Structure of a Company
Meaning of Capital StructureCapital Structure is the ratio of different types of securities raised by a firm as its long-term finance. Capital structure decision involves two philosophies −Type of securities to be issued in capital structures must be equity shares, preference shares, and long-term borrowings (Debentures).Relative ratio of the securities can be obtained by the process of capital gearing. On the basis of gearing, the companies are divided into two categories −Highly geared companies – The companies which have a proportion of equity capitalization that is small.Low geared companies – The companies the equity capital of which is high in ...
Read MorePayback Period as a Method of Handling Investment Risk
Payback period or simply payback in capital budgeting refers to the time required for the ROI (Return on Investment) to repay the original sum of investment.Payback is a preferred tool because it is easy to understand and apply, irrespective of whether the manager is aware of financial calculations or not.Payback is an effective tool to derive the worth of an investment when similar projects are compared.The payback method is a simple tool to measure the months or years it takes to repay the initial investment of a project.The payback method doesn’t have any specific criteria for the evaluation of investments ...
Read MoreWhat is Deferred Tax?
The term "deferred tax" refers to a tax which shall either be paid in future or has already been settled in advance. In this article, we will see why a company may differ its tax to a subsequent fiscal year or why a company may choose to pay the tax in advance.Most companies normally prepare an "income statement" and a "tax statement" every fiscal year because the guidelines that govern the recording of income and taxation are slightly different. It is this slight disparity between the guidelines that creates the scope for deferred tax.Types of Deferred TaxThere are two types ...
Read MoreWhat is Amortization?
Amortization vs. DepreciationBoth Amortization and Depreciation are concepts that are used to account for the consumption of assets and how they lose their value over their useful life.We understand that tangible assets such as plant machinery, furniture, buildings, and vehicles lose their value over a period, which is called "depreciation". But, what about intangible assets such as copyrights, trademarks, patents, agreements, etc.? Such intangible assets too lose their value over a course of their useful economic life.Amortization is a concept similar to depreciation, but it is applied primarily to intangible assets and their periodic reduction in value over time. The ...
Read MoreWhat is an Installment Sale?
As the name suggests, an "installment sale" is an approach where the seller allows the buyer to make payments in installments over a period of time. It is a Revenue Recognition method in which the seller defers the revenues until the payment is received.In an Installment Sale, the revenues and the expenses are recognized at the time when the actual cash flow occurs, rather than at the time of sale. Installment Sales are quite prevalent in real-estate deals.Note that, although the buyer gets the goods at the beginning of the installment period, the ownership is not fully transferred at the ...
Read MoreWhat is the Revenue Recognition Principle?
Most of the big companies do business on credit. They supply goods and services for which the payments are received at a later stage or over a period of time. Hence, it becomes important for companies to follow a standard process to recognize the revenue from such transactions and record them in their financial statements.There are multiple stages at which a company can recognize the revenues in its books.Revenue Recognition CriteriaAccording to the International Financial Reporting Standards, the following conditions must be satisfied to have a company recognize its revenues −There should be sufficient assurance that the payment will be ...
Read MoreWhat is Accrual Principle in Accounting?
The Accrual Principle is a concept in Accounting where the financial transactions are recorded during the same time period in which they occur. Note that the actual cash flow may occur at a later stage. For example, suppose a company supplies goods worth $50, 000 in the first quarter of financial year, but the company receives the payment in the second quarter. In such a case, if we apply the Accrual Principle, then the company will record this financial transaction in its books in the first quarter itself.The Accrual Principle is useful when it is important to match the revenues ...
Read MoreWhat is Value-Based Pricing?
Cost-Plus Pricing Vs Value-Based PricingIn general, companies calculate the selling price of a product or service based on the costs incurred in manufacturing that product or delivering that service. This is what we call Cost-Plus Pricing strategy where the price of a product is proportional to the manufacturing cost.We very well understand that a superior brand can charge slightly more for a product than a less-known company that produces the same product, which is the usual case. There's a brand value attached to products that belong to a superior brand. In such cases, the price difference between the products do ...
Read MoreWhat is Marginal Benefit?
We can define Marginal Benefit as the maximum amount a buyer can pay for an extra unit of product purchased after the first unit. Consumers normally tend to compare the marginal cost of purchasing an extra unit with the marginal benefit derived from purchasing it. In other words, we can also define Marginal Benefit as the satisfaction that a consumer gets after purchasing an extra unit. It is also known as marginal utility.How Do Companies Use Marginal Benefit?Marginal Benefit is a valuable tool that is heavily used in business market research and advertising. Companies evaluate marginal benefits and use that ...
Read More