Acid test ratio (Quick Ratio)
- The ratio of current assets (exclusive of inventory) to the total current liabilities
- An index of short term paying ability
Differential cost
- Those cost that arise at the result of a change in operations or policy or it is the ratio of a small
increment cost and a small increment of output.
Developmental cost
- The sum of all the cost incurred by the originators of the project up to the time that the promoters
of the project accept the project
Capital gain
- an increase in the value of a capital asset
Collective bargaining
- the negotiation of wage rates, conditions of employment, etc. by representatives of the labor force
and management
Dividends
- The amount of company’s profits that the board of directors of the corporation decides to
distribute to ordinary shareholders.
Asset turnover
- The ratio of annual sales to the average of assets used in producing these sales
Amortization
- It is defined to be any method of repaying a debt, the principal and interest included usually by a
series of equal payments at periodic intervals of time
Fixed Cost
- Cost that does not change with the changes in volume of outputs
Obsolescence
- The reduction value and marketability due to competition from newest products
Balance Sheet
- Form of summary of assets, liabilities and net worth
Benefit – Cost Ratio
- Ratio of annual revenues to the annual expenses
Payback Period
- The length of time usually in years for the cumulative net annual profit to equal the final
investment.
Variable Cost
- Cost which is a function of the independent variable,
Marginal Cost
- The additional cost of producing one more unit
Fixed Cost
- Cost which remain unaltered whether or not a given change
Increment Cost
- Cost which arise as a result of a change in operations or policy
Recurring Cost
- Cost that are repetitive and occur when an organization produces similar goods or services on a
continuing basis
Patents
- Are intangible assets of a company or a corporation
Liquidity Ratios
- These ratios measures the capability of a company to satisfy its current obligations.
1. Current ratio indicates the extent to which the company's current assets will cover its current
liabilities.
Current ratio = current assets/current liabilities
2. Acid-test ratio is an indicator of the ability of the company to pay off short-term liabilities using
existing assets without relying on inventory sales.
Acid-test ratio = current assets – inventories/current liabilities
Efficiency Ratios.
- The measures reflect the efficiency of the utilization of such assets or liabilities in the
development of goods and services.
1. Inventory turnover ratio. This ratio calculates the number of times a stock is returned (or sold)
per year.
Inventory turnover ratio = cost of goods sold/inventory
2. Fixed asset turnover. This ratio is used to calculate the utilization of the investment of the
company in its fixed assets, such as its facilities and equipment.
Fixed asset turnover = net sales/net fixed assets
Financial Leverage Ratios.
- This is a group of ratios aims to evaluate the balance of funds generated from sources of debt and
equity.
1. Debt to total assets ratio. This ratio demonstrates how much of the company's capital is
funded by debt.
Debt to total assets ratio = total debt/total assets
2. Times interest earned ratio. This ratio calculates the amount of times that the company's
interest costs are covered or exceeded by profits before interest and taxes.
Times interest earned ratio = profit before tax and interest /interest expense
Profitability Ratios.
- These ratios calculate how much a company's operating income or net income will generate in
comparison to its assets, equity of the owner, and revenue.
1. Profit margin ratio. This ratio compares the level of revenue with the level of net profit.
Profit margin ratio = net profit/net sales
2. Return on assets ratio. For each peso invested in assets, this ratio indicates how much revenue
the company generates.
Return on assets ratio = net income/assets
3. Return on equity ratio. This ratio calculates the return on the investment of the owner.
Return on equity ratio = net income/equity