An asset is a resource owned or controlled by a company that can yield future economic benefits. If these benefits span several years, the asset may be considered a capital asset. What is a Capital Asset? A capital asset is a significant property or equipment owned by a business and …

Companies must record an accurate value for inventory in their financial statements to represent an accurate financial picture. However, this task is not straightforward due to the challenges in evaluating inventory. Therefore, it is crucial to understand what inventory valuation is and how it works. What is Inventory Valuation? Inventory …

Borrowing and lending can be confusing – however, it’s one of the main forces of the economy. Without borrowing or lending, many people would not be able to afford big purchases like a house or car, and businesses would struggle to grow and expand. However, with borrowing and lending comes …

Restricted cash plays a key role in managing finances because it’s often set aside for specific purposes. Businesses need to keep track of this cash to meet legal or financial obligations. It can help ensure that funds are available when needed, especially for big projects or debt payments. Having these …

For most companies, the cost of goods sold or services rendered constitutes the most significant portion of total expenditure. However, another expense that is often also crucial is organization cost. What are Organizational Costs? Organizational costs encompass expenses related to managing and administering a company rather than its direct production …

Knowing how the effective tax rate works is key to managing overall finances. It shows the real percentage of income that goes to taxes, giving a clear view of tax responsibilities. This rate is important because it allows for comparing tax loads between different income levels, ensuring everything’s fair. By …

Companies can generate revenues and incur expenses in different departments or areas. These areas may fall into various categories in accounting. Typically, these get divided into operating, financing, and investing activities. Among these, the former is the most crucial for companies. What are Operating Activities? Operating activities encompass the essential …

The fixed-charge coverage ratio might sound complicated, but it’s just a way to see if a company can pay its regular bills and interest on loans. Imagine checking if there’s enough money to keep the lights on and pay the rent. This ratio helps understand a company’s financial health by …

When it comes to finance, understanding the right metrics can make all the difference. The EBIT/EV Multiple is one such crucial tool that helps to measure a company’s performance. For anyone curious about making smart investment choices or just wanting to understand a company’s true value, this metric is super …

Companies may use various estimation methods for specific projects. One of the most prevalent ones is top-down estimating. What is Top-down Estimating? Top-down estimating is a project management technique that involves creating high-level estimates for a project’s cost, duration, or effort. Instead of breaking down the project into individual tasks, …