Definition: The Gross Profit Margin Ratio shows how efficiently the company has generated revenues from the sale of its inventories and merchandise. Simply, this ratio measures the amount of profit generated after meeting the direct expenses related to the production of goods and services. The gross profit is the difference between the revenues generated and the cost of … [Read more...] about Gross Profit Margin Ratio
Capital Asset Pricing Model
Definition: The Capital Asset Pricing Model predicts the relationship between the risk of an asset and its expected returns. The capital asset pricing model asserts that the investor should be compensated in two ways: Time value of money and the Risk. The time value of money means, the value of money today worth more than the value of the same amount in the future. Thus, … [Read more...] about Capital Asset Pricing Model
Profitability Ratios
Definition: The Profitability Ratios measure the overall performance of the company in terms of the total revenue generated from its operations. In other words, the ratios that measure the capacity of a firm to generate profits out of the expenses and the other cost incurred over a period are called the profitability ratios. Profit Margin Ratios and the Rate of Return Ratios … [Read more...] about Profitability Ratios
Turnover Ratios
Definition: The Turnover Ratios measure the efficiency of investments made by the firm in the form of revenues and the cost of sale generated during a period of time. These ratios show the relationship between the revenues or cost of sales generated due to the investment activities undertaken. Some important Turnover Ratios are: Inventory Turnover Ratio Debtors … [Read more...] about Turnover Ratios
Liquidity Ratios
Definition: Liquidity Ratios are calculated to determine the capacity of a firm to pay off its short-term obligations when they become due. In other words, firm’s cash balance or the readiness to convert its asset into cash, to pay off its current debt is called as liquidity and the ratios that compute it are called as liquidity ratios. Following are the Important liquidity … [Read more...] about Liquidity Ratios
Dividend Decision
Definition: The Dividend Decision is one of the crucial decisions made by the finance manager relating to the payouts to the shareholders. The payout is the proportion of Earning Per Share given to the shareholders in the form of dividends. The companies can pay either dividend to the shareholders or retain the earnings within the firm. The amount to be disbursed depends on … [Read more...] about Dividend Decision
Financing Decision
Definition: The Financing Decision is yet another crucial decision made by the financial manager relating to the financing-mix of an organization. It is concerned with the borrowing and allocation of funds required for the investment decisions. The financing decision involves two sources from where the funds can be raised: using a company’s own money, such as share capital, … [Read more...] about Financing Decision
CAMELS Rating
Definition: CAMELS Rating is the rating system wherein the bank regulators or examiners (generally the officers trained by RBI), evaluates an overall performance of the banks and determine their strengths and weaknesses. CAMELS Rating is based on the financial statements of the banks, Viz. Profit and loss account, balance sheet and on-site examination by the bank regulators. … [Read more...] about CAMELS Rating
Sunk Cost
Definition: A Sunk Cost is the cost already incurred by the firm and cannot be recovered or refunded. The cost which was incurred in the past and is now permanently lost is called as a Sunk Cost. Suppose, a firm has spent Rs 50,000 in the construction of a building, but due to some government law the construction has to be stopped, then the amount spent till date is a sunk … [Read more...] about Sunk Cost
Capitalized Cost
Definition: A Capitalized Cost is the cost incurred in the purchase and financing of fixed assets. It includes not only the price paid for an asset but also the expenses incurred on its installation and transportation. A capitalized cost is added to the fixed assets and is shown on the assets side of the balance sheet. These costs are not deducted from revenues during the … [Read more...] about Capitalized Cost