Gross profit represents the earnings a company generates from its operations. Companies include it in the income statement as a part of the calculation for net profits. However, the figure is incomparable and does not show how the company performs over time. Therefore, investors may rely on the gross profit …

For companies offering sales on credit, accounts receivable balances are prevalent in the balance sheet. These balances may vary based on several factors. However, it may affect ratios and financial metrics that use accounts receivable balances. Therefore, companies may calculate average net receivables instead. What is Average Net Receivables? Average …

Companies accumulate financial performance as a metric in the balance sheet. Depending on whether a company has been profitable or loss-making historically, the name will differ. If companies make more losses than profits, they get an accumulated deficit. What is Accumulated Deficit? Accumulated deficit, or retained deficit or accumulated losses, …

Companies undertake projects that span over various periods. When preparing financial statements, they must determine the percentage for the completion of these projects. Companies can use several methods to establish this ratio. One of these methods is called cost-to-cost. What is the Cost-to-Cost Method? The cost-to-cost method, or the percentage …

Financial statements provide crucial information regarding a company’s activities. The balance sheet encompasses all aspects of a company’s finances. What is the Balance Sheet? The balance sheet, or the statement of financial position, is a foundational document in accounting and financial reporting. Its primary function is to provide a detailed …

When it comes to financial metrics, EBITDA Margin holds a significant place. It serves as an insightful lens to understand a business’s operational efficiency and profitability. By focusing on earnings generated before certain financial considerations, it provides a clear picture of how a company is performing at its core. It’s …

Each financial statement focuses on specific financial information. Often, stakeholders prioritize profitability when analyzing a company’s performance. The primary source of information related to that comes from the income statement. What is the Income Statement? The income statement, or the profit and loss statement (P&L), is a fundamental financial document …

Landlords often demand tenants pay them rent in advance. For the tenant, it is a prepayment or asset. However, the landlord must recognize it as unearned rent. Before understanding the accounting treatment, it is crucial to know what unearned rent is. What is Unearned Rent? Unearned rent, or deferred rent …

Companies follow a strategy that ensures profitability and future growth. As a part of this strategy, they decide how to run their operations. Usually, it also entails assessing the assets required to run those operations. If needed, companies can go through capital addition to support activities. What is Capital Addition? …

Understanding the world of taxes can often seem like a daunting task. The term “Value Added Tax” or VAT may have been heard so many times. It’s a critical piece of tax in the financial puzzle, affecting both businesses and consumers. Understanding how it works can offer clarity on its …