1.2.1. Cost Volume Profit Analysis (i) Meaning CVP analysis studies the relationship between volume of sales, cost of production and profit. Under the method of analysis cost is divided into fixed cost and variable cost. A change in the cost affects the profit. CVP analysis helps in quantifying the change.
2. Many firms give their employees stock options, and they repurchase stock for use when employees exercise the options. In this option, the number of outstanding shares reverts to its pre-repurchase level. 3. A company has excess cash, it may be due to a sudden cash inflow, such as the sale of a division of business, or it may simply be that firm is generating more free cash flow than it needs for its operation and expansion plans.
2.3.4 Return on Assets The return on assets ratio, often called the return on total assets, is a profitability ratio that measures the net income produced by total assets during a period by comparing net income to the average total assets. In other words, the return on assets ratio or ROA measures how efficiently a company can manage its assets to produce profits during a period. Since company assets' sole purpose is to generate revenues and produce profits, this ratio helps both management and investors see how well the company can convert its investments in assets into profits. For the analysis, the return on assets ratio measures how effectively a company can turn earns a return on its investment in assets. In other words, ROA shows how
1.1 BACKGROUND OF THE STUDY: Shareholders earn the profit on their investments by two ways either by Dividends or by Capital Gains. A dividend can be thought of as the cost of Equity Capital to the shareholders. Dividend is actually a profit which is paid to the shareholders in terms of Cash/Stocks in each year or in each quarter as per company’s policy whereas Capital gain is rise in market value of an asset. It is not compulsory for a company to declare dividend in each period. Dividend announcements can be used as a direct signal of strength regarding a company’s liquidity in the market.
Accrual accounting Accrual accounting is an accounting method that measures the performance and position of a company by recognizing economic events regardless of when cash transactions occur. The general idea is that economic events are recognized by matching revenues to expenses (the matching principle) at the time in which the transaction occurs rather than when payment is made (or received). This method allows the current cash inflows/outflows to be combined with future expected cash inflows/outflows to give a more accurate picture of a company's current financial
Break-even units is the number of units required to cover fixed costs for a period of time. Cost volume profit analysis simplifies the calculation of breakeven in break-even analysis, and more generally provide simple computation of target income sales. It simplifies analysis of short run trade-offs in operational decisions. Cost volume profit analysis enables managers to be capable of answering specific realistic questions needed in business analysis. Questions such as what the company's breakeven point is support manager’s project with spending forecasts and how production will contribute to the success or failure of the
3.1 Fixed-Asset Turnover Ratio – An overview The ratio of net sales to fixed assets is known as fixed-asset turnover ratio. It is calculated by analysts to determine the operating performance of a company. Basically this ratio accounts for the net sales a company can generate based on its fixed asset investments. They are -property, plant and equipment (PP&E), net of depreciation. A higher fixed-asset turnover ratio is preferred for it is a sign of optimum utilization of investments made in fixed assets and this also reflects the efficiency of human resources a company has.
Firstly, profitability means its ability to earn income and sustain growth in both short-term and long-term. The degree of profitability of a company is usually referring to the income statement, which reports on the company’s result operation. From this, managers estimate the profit company can earn this year before doing any decisions. Secondly, solvency means its ability to pay its obligation to creditors and other third parties in the long-term. By using this tool, managers can know the ability of the company to clear its debts.
SCOR KPI is Costs of Goods Sold (COGS) and SCM Costs. o Assets or Assets Management Efficiency: focuses on how efficient the company is to utilize its assets. Inventory reduction is an example of Asset management in supply chain. SCOR KPI is Return On Fixed Assets and Cash To Cash Cycle Time. There are a certain average percentages that determine how well the performance of supply chain process is.
This indicated that shorter the cycle, the more working capital a business generates, and the less it has to borrow. Drawing from this, managing cash conversion cycle is an effort to reduce the period at which it sold its inventory/stock, increase period at which its pay its suppliers as well as minimize the period its collect its receivables from customers that purchase its stocks. The basic idea of managing cash conversion cycle is to improve the speed with which a firm turn materials and supplies into products, inventory into receivables, and receivables into cash (). Specifically, cash conversion cycle can be managed on the basis of how firm’s devices strategies to defer payable period (AP), quickly sold its inventories and quickly collects its receivables from customers. The more a firm defer payments period, reduce inventory conversion period (AR) and reduce receivable conversion period the more it will generating adequate capital/cash to meet day to day business operations.