Liquidity Ratio

Liquidity ratio measures the ability of a company to pay its current and long term liabilities. It’s the easiest way to know how much fund a company can raise and how much asset can convert into cash?

Liquidity ratio can be categorized into various types such as: Acid ratio, Cash ratio & current ration. 

Acid Ratio:  Acid ratio also called as quick ratio. Acid ration defines the ability of a company to meet its current and short term obligations with the use of its most liquid assets.

Calculation method:   Cash & cash equivalents + Accounts receivable + Short term investments / Current liabilities

Accounting Period

 

 

It’s the period for which financial statements prepared of an entity. One accounting period consists of 12 months. This time period can be from January to December (calendar year) or April to March (Fiscal Year).

Accounting period varies according to type of business. For example, if a business set forth on February 12 then its first accounting period would be from February 12 to February 28/ 29.

Again, if a business shut down on March 25 then its final accounting period would be from March 1 to March 25.  Accounting period pertain to only income and cash flow statements as balance sheet prepared on a specific date.

 

 

Dividends

Dividend is the share of profits of a company / entity with shareholders. After paying to its creditors company can share some or whole profit with its shareholders. Company can also skip paying dividends if it needs funds for reinvestment or any other business work.  Company also can decide the date and rate for dividend pay. Normally, dividend paid quarterly and monthly.

 

Decentralization

Decentralization refers to the delegation of the decision making and other powers of higher authority to the lower units or sub units.

Decentralization allows higher authority to invest their time in other areas for expand and growth of the business.

Sometimes this became sub-units took decision which is better for them not for the business.

Accumulated Depreciation

It’s the total cost of depreciation of an asset in a regular period of time till it exists. It shows the decreasing value of an asset over the period of time. Accumulated depreciation reflects in the balance sheet under accumulated account and this amount never ends at the end of a financial year, it carry forward to the next year.

Calculation: 

We can calculate the depreciation amount in three different ways mentioned below:

Continue reading “Accumulated Depreciation”

Annuity

Annuity:  

Annuity is an amount of fund invested by an individual or a financial institution in order to receive equal amount of money at equal time intervals. It can be defined as a fixed income source for an individual.

It’s an opportunity for an individual to raise a huge amount by investing less. Continue reading “Annuity”