Calculate and Interpret Liquidity and Solvency Ratios

Ratio analysis can assist with the conduct of time-series and cross-sectional analysis of a company’s financial position. Balance sheet ratios are those ratios which involve balance sheet items only and include (i) liquidity ratios, which measure a company’s ability to…

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Convert Balance Sheets to Common-size Balance Sheets

Converting a company’s balance sheet into a common-size balance sheet is a very useful tool for providing insight into the company’s liquidity as well as its solvency. Common-sizing the balance sheet can assist with time-series analysis by comparing the company’s…

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Uses and Limitations of the Balance Sheet

The balance sheet can provide very useful information to users of financial statements. It, however, has several limitations to its use. Uses of the Balance Sheet The balance sheet gives insight into a company’s financial condition at a particular point…

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Assets, Liabilities, and Equity

The balance sheet, also known as the statement of financial position or statement of financial condition, is a financial statement that gives a snapshot of a company’s assets, and its sources of capital, i.e., liabilities and shareholder’s equity, at a…

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Direct and Indirect Methods – Cash from Operating Activities

Cash flow from Operating Activities may be reported in one of two presentation formats: the direct method and the indirect method. Both IFRS and US GAAP encourage the use of the direct method but will allow either method to be…

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NPV as a Capital Budgeting Evaluation Method

Projects which have a positive NPV should, in theory, increase the value of a company as well as the value of its stock. This could help explain the popularity of NPV as a capital budgeting evaluation method. Relationship among NVP,…

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Yield Conversion Based on Periodicity

In general, an annualized and compounded yield on a fixed rate bond depends on the number of periods in a year, called the periodicity of the annual rate, which typically matches the frequency of coupon payments. For instance, the annual…

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Professionalism in Investment Management

Investment management is an upcoming profession. This is evidenced by the following: The public understanding of its practice and codes are still growing. There is a lack of recognition by the regulators and the employers, which prevent the establishment profession…

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Ethics and Profession

A profession can be defined as the occupational group that is based on the unique education, specialist knowledge, and framework of practice and behavior that establishes community trust, respect, and recognition. A large proportion of professions outlines the importance of…

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Hypothesis Test on Correlation

The correlation between two variables measures the strength of the linear relationship between them. We wish to assess this relationship using the correlation coefficient. The assessment is based on whether the relationship occurs by chance or not. Intuitively, if the…

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