Financial Statements

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How Banks Calculate the Earning Assets to Total Assets Ratio

Bank analysts want to know what percentage of a company's assets are actually generating income. They determine this with the earning assets to total assets ratio [more…]

How Analysts Calculate the Net Interest Margin

Analysts use the net interest margin to determine whether the earning assets are actually making enough money to justify the interest expense or if the company would’ve been better off just paying off [more…]

How Companies Use the Loan Loss Coverage Ratio

Companies measure their rainy day fund by using the loan loss coverage ratio. Your “rainy day fund” is the money you set aside in case you lose your job and stop making money. A company's loan loss coverage [more…]

How Companies Determine the Equity to Total Assets

Some companies are particularly interested in the proportion of their total assets that’s comprised of equity ownership because this ratio can decrease the amount that they have to borrow in order to generate [more…]

How Banks Determine the Deposits Times Capital

An effective way to determine the number of times over total equity that deposits cover is to calculate deposits times capital. Deposits are the primary way a bank borrows money. A customer deposits money [more…]

How Banks Calculate Their Loans to Deposits Ratio

A very important ratio for banks to calculate is their loans to deposits ratio. A high loans to deposits ratio means that the bank is issuing out more of its deposits in the form of interest-bearing loans [more…]

How to Use Analytics to Measure Operating Asset Management

The following ratios are of primary concern for those people who manage, own, or lend to companies that have large capital investments — companies that need things that are very expensive to operate. These [more…]

Vertical Common-Size Data Comparisons

Each vertical common-size comparison uses a single financial statement from a single year. In other words, you might do a vertical comparison of a corporation’s 2011 income statement, and then another [more…]

Horizontal Common-Size Data Comparisons

Horizontal common-size comparisons use only one type of financial statement at a time, but instead of using that statement from just one year, they utilize several consecutive years’ worth of the same [more…]

Cross Data Comparisons Use Vertical and Horizontal Common-Size Comparisons

Two types of comparisons utilize data from both the vertical and horizontal analyses, producing cross comparisons. The horizontal common-size comparison does a lot to help you understand changes in a corporation’s [more…]

Perform Financial Comparatives Over Time

The goal of comparing financial metrics over time is to judge the current performance of a corporation based on the past performance of the same corporation. Instead of looking at your financial measures [more…]

Perform Financial Comparatives Against Industry

Maybe the corporation you’re analyzing has improved dramatically over the years. Its common-size analyses make it seem like the corporation’s asset allocations are steadily improving, and a comparison [more…]

The Differences between Managerial and Financial Accounting

Managerial accounting provides internal reports tailored to the needs of managers and officers inside the company. On the other hand, financial accounting provides external financial statements for general [more…]

Obtain a Sales Budget for Your Master Budget

The master budget process starts with the sales department, which estimates expected sales for the coming period. The sales budget uses this information to project total sales revenue. [more…]

Generate a Production Budget as Part of Your Master Budget

If you plan to sell inventory, you need some inventory to sell. That’s why you need a production budget. The production budget computes the number of units the company needs to produce in order to meet [more…]

Set a Direct Materials Budget as Part of Your Master Budget

Making inventory? You need to get direct materials (as well as direct labor and overhead). First tackle the direct materials budget, which specifies the amount of direct materials that the company must [more…]

Establish a Direct Labor Budget as Part of Your Master Budget

In order to convert direct materials into finished goods, you need direct labor. The direct labor budgettells you how many direct labor hours of work you’ll need, indicating whether you have enough workers [more…]

Build an Overhead Budget as Part of Your Master Budget

The overhead budget estimates the coming year’s total overhead costs and sets an overhead allocation rate. To prepare it, you need detailed information about the company’s overhead, including an analysis [more…]

Add Up the Product Cost as Part of Your Master Budget

A critical step in the budgeting process is to compute projected product cost, or the expected cost of each unit made during the budget period. To calculate Forever Tuna’s projected product cost, add together [more…]

Fashion a Selling and Administrative Budget as Part of Your Master Budget

Sales don't happen by themselves; instead, you need a sales force, paid with a combination of salaries and commissions. The selling and administrative expense budget predicts the amount of [more…]

Construct a Budgeted Income Statement as Part of Your Master Budget

Another key test of a budget is the budgeted income statement. Here, you can check to see whether all the predictions and assumptions you made about sales, materials, direct labor, overhead, and S&A will [more…]

Apply Master Budgeting to Nonmanufacturers

Manufacturers aren’t the only companies that need master budgeting. Retailers and service providers have to plan ahead, too. Here are some tips on how to adapt the manufacturer’s master budgeting process [more…]

Control Your Business with Budgeting

Budgeting helps you plan your business’s operations. However, you also need to control your business —– to monitor what’s actually happening. Controlling involves constantly comparing actual activity to [more…]

How to Deal with Budget Variances

One of the benefits of flexible budgeting is that it helps you to understand the reasons for your company’s variances, the differences between actual and budgeted amounts. [more…]

How to Implement a Flexible Budget

To compute variances that can help you understand why actual results differed from your expectations, creating a flexible budget is helpful. A flexible budget [more…]

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