Components of the Income Statement
The income statement also referred to as the “statement of earnings” or the “profit and loss” (P&L) statement, provides information on the financial performance of a company over a specified period of time. It shows the amount of revenue a…
Principles of Revenue Recognition and Accrual Accounting
General Principles of Revenue Recognition According to IFRS, a company should recognize revenue from the sale of goods whenever the following conditions are satisfied: the company has transferred the significant risks and rewards of ownership of the goods to the…
Assets, Liabilities, and Equity
The balance sheet is also known as the statement of financial position or statement of financial condition. It 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,…
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. Uses of the Balance Sheet The balance sheet gives insight into a company’s financial condition at a particular point in time. It…
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 a company’s liquidity as well as its solvency. Common-sizing the balance sheet can assist with time-series analysis by comparing the company’s…
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 that involve balance sheet items only and include (i) liquidity ratios, which measure a company’s ability to…
Direct and Indirect Methods – Cash from Operating Activities
Cash flow from Operating Activities may be reported in either presentation format: 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 used. Under…
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 NPV,…
Yield Conversion Based on Periodicity
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 yield-to-maturity on…
Professionalism in Investment Management
Investment management is an upcoming profession. This is evidenced by the following: However, some critical elements of investment management have developed over the years. Investment management just like any other profession meets a large proportion of the profession expectations. Moreover,…
