Found 1748 Articles for Growth & Empowerment

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 More

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 More

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 More

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

The "discounted payback period" is a modification of the simple payback version where the time value of money is considered in the calculation. In discounted payback period calculation, different metrics are used to measure the amount of time the project will take to "break-even."In some cases, the discounted payback is measured to the point of time where the net cash flows generated from the project cover the initial cost of the project.Simple and discounted payback periods are both used to measure the profitability and feasibility of an investment project.Underlying Meaning of Discounted Payback PeriodThe discounted payback period is used to ... Read More

All typical investments have the following three types of cash flows −Initial investmentYearly net cash flowsTerminal cash flowsInitial InvestmentThe initial cost is the cost of assets in the beginning phase of a project. It is the net outlay in the given period when an asset is purchased.Gross Outlay or Original Value (OV) is a major element of initial investment which includes the costs of accessories and spares, and freight and installation charges. The OV is included in the block of an asset to calculate the depreciation. Original value minus depreciation is the book value (BV) of the asset.A lumpsum investment ... Read More

The Profitability Index (PI) shows a parallel between the expenses and profits of a certain project. It is obtained by dividing the net present value of the property’s future cash flows by the initial investment.When the profitability index is over 1.0, it is positive and the investment will generate profits.If the PI is less than 1.0, then it is negative where the investment will probably fail.In other words, the profitability index is the ratio between the net present value of future cash flows and the initial investment.A profitability index number of 1.0 is likely the lowest desired number for investors. ... Read More

The "cost of debt" can let one understand what they are paying for the benefit of having fast access to cash. The cost of debt is calculated by adding up all loans, balances on credit cards, and other financing tools the company has. The interest rate expense for each year is found and added. Next, the total interest is divided by the total debt to get the cost of debt.Cost of Debt FormulaThere are multiple ways to calculate the cost of debt, depending on pre-tax or post-tax rates. The pre-tax cost of debt is calculated with the above method and ... Read More

The method that is used to calculate the cost of capital for divisions can also be used to determine the cost of capital of projects. It’s hard to find comparable projects that resemble each other in all aspects. The risk profiles of companies depend on their operating leverage. This should be remembered while determining the beta of a project. The variability of a project’s earning can also be used to determine the beta.A simple way to incorporate risk differences into similar projects is to add or subtract the risk associated with the project. So, the weighted average cost of capital ... Read More

Although being a disputed matter in the financial world, the cost of capital is an important measure that helps the managers in decision-making in the correct manner. The following are the reasons why the cost of capital is an important measure −Evaluation of InvestmentThe cost of capital is used in both NPV and IRR methods of investment evaluation.In the NPV method, a project is accepted if it has a positive NPV. The project’s NPV is usually calculated by discounting its cash flows by the cost of capital. In this sense, the cost of capital is the discount rate used to ... Read More