Financial [FAQs]

Financial Q&As

What is income statement?

An income statement is a financial report that shows the amount of money a company has earned during a specific period.

One of the most important reports a business will produce is its income statement. This document shows how much revenue a company has generated and what percentage of that revenue came from each category of income.

By understanding your business's income statement, you can help make strategic decisions about how to grow it and where to allocate capital.

What is balance sheet?

Balance sheet is a financial statement that tracks a company's assets, liabilities and owners' equity. The balance sheet can clearly show whether a company is solvent or insolvent.

In particular, it can help to identify liabilities that may have to be paid in the near future, and whether there is money available to cover those debts. It can also reveal how much money the company has invested in its assets, which gives an indication of how confident management is about its long-term prospects.

What is cash flow statement?

Cash flow statement is a financial statement that shows the cash and cash equivalents (including short-term borrowings) as well as the changes in cash and equivalents during a certain period.

This statement is helpful in understanding the company's ability to meet its short-term financial obligations.

What are financial ratios?

Ratios are measures of financial performance that can be used to help investors and managers make informed decisions.

Financial ratios provide a snapshot of how a company is performing by comparing different financial measurements. The most common financial ratios are net income (loss) per share, operating income (loss), cash flow, margin, and return on assets (ROA).

What is profit margin?

The profit margin is the difference between sales and costs.

What is gross profit margin?

Gross profit margin is the percentage of revenue that a company earns over its COGS.

What is COGS?

COGS is short for cost of goods sold. It is a financial measure that companies use to track the total costs associated with producing and selling their products. These costs can include raw materials, labor, overhead, marketing expenses, and administrative costs.

What is net profit margin?

Net profit margin is the percentage of net sales that a company earns after deducting all costs (direct and indirect).

What are overhead costs?

Overhead costs are the expenses associated with an organization's operations that cannot be directly attributed to producing goods or services. These costs can include administrative, marketing, and personnel costs.

What is direct cost?

Direct cost is the total cost of a good or service purchased or rendered. It includes all costs associated with the purchase, production, transportation, and sale of the good or service.

What is indirect cost?

Indirect cost is a term used in the accounting and business world to describe the costs associated with producing or supplying a product or service. Indirect costs can include things like employee wages, material costs, and overhead expenses. When calculating a company's income, indirect costs are often included in the calculation of unit costs (the price of each individual item produced).

What is financial analysis?

is a process that helps businesses make informed decisions about money. It includes measuring and analyzing , projecting future cash flows, and making wise investments.

What is financial reporting?

Financial reporting is the process by which publicly traded companies report their financial performance to shareholders and the public. Financial reporting includes preparing financial statements, which summarize a company's past financial performance and provide information about its cash, investments, liabilities, and shareholders' equity.

What is financial scorecard?

A financial is an individualized performance measurement tool that can help you track your progress and identify areas of improvement. It can also serve as a valuable tool for and investment decision making.

What is financial dashboard?

A financial dashboard is a reporting system that provides users with a visual overview of their company's financial condition at a glance. The dashboard typically contains charts, graphs and tables that display key performance indicators () and other pertinent data. Financial dashboards can help stakeholders better understand the state of the company's finances and make sound decisions affecting their businesses.

What are financial assets?

Financial assets are items that can provide financial benefits when sold or used. These assets can include money, stocks, bonds, and real estate.

What are financial liabilities?

Financial liabilities are amounts you owe to others for things like loans, debts, and deposits.

What is financial equity?

Financial equity is the difference between an entity's total liabilities and its total assets.

What is GAAP?

GAAP is generally accepted accounting principles. GAAP is a framework of financial reporting that requires companies to disclose specific financial information in accordance with Generally Accepted Accounting Principles.

GAAP may be different from the accounting practices used by a particular company or industry, so it's important for investors and analysts to review individual companies' reports to get a sense of how they are accounting for transactions.

What is accounting?

Accounting is the process of recording, classifying, and summarizing financial transactions to provide information that is useful in decision making.

It has two main purposes: communicating financial information to internal and external stakeholders, and providing a basis for financial reporting. On a more fundamental level, accounting provides an understanding of financial flows and their impact on economic performance.

Accounting also plays an important role in and business decision making by providing information on trends and risks associated with a company's investments, liabilities, and income. In addition, accounting can identify potential sources of business value creation.

What are financial statements?

Financial statements show how a company is doing financially and can be used to make decisions about investment, acquisition, and other actions.

What is internal control reporting?

Internal control reporting provides information on the effectiveness of a company's policies and procedures designed to prevent fraud and improve the reliability of financial reports.

The principal components of an effective internal control framework are policies and procedures to identify and monitor risks, maintain accurate accounts, and ensure proper financial reporting. Other key elements include training of employees in detection and prevention of fraud, setting up effective communication channels within the company, establishing procedures for responding to suspected fraud, and maintaining adequate records of all activity.

What is bookkeeping?

Bookkeeping records the financial transactions of a business, such as sales, receipts, and expenses. It helps a business stay organized and efficient by tracking financial information in a uniform way.

What is activity based costing?

Activity-based costing is a method of costing that assigns a cost to each activity performed in the business process. The total cost of goods produced (TCG) is the sum of the costs associated with all activities performed by the company to create and deliver their products and services.

What is current ratio?

The current ratio is a financial ratio that measures a company's ability to pay its short-term debts and other liabilities with its short-term assets.

What is acid test ratio?

The acid test ratio is a number used in the financial world to measure a company's ability to pay its debts and remain solvent.

What is financial leverage?

Financial leverage is the use of borrowed money to increase the return on investment.

What is asset turnover ratio?

The asset turnover ratio is a financial ratio that measures a company's ability to generate revenue by turning assets into cash.

What is inventory turnover ratio?

The inventory turnover ratio is a measure of how often a company's inventory is used or converted into sales.

What is days sales in inventory ratio?

The days sales in inventory ratio is the number of days it takes for a company's inventory to sell out.

What is accounts receivable?

Accounts receivable is a financial account that reflects the value of goods and services that have been billed but not yet collected.

What is accounts payable?

Accounts payable are money that a business owes to suppliers and other creditors.

What are current assets?

Current assets are things that a business can use to pay its debts and expenses immediately. These might include cash and marketable securities.

What is return on assets?

A company's return on assets (ROA) is a measure of its profitability calculated as the annualized percentage increase in net asset value (NAV) over the past year, divided by average total assets.

What is return on equity?

In business, return on equity (ROE) is a financial metric that shows how efficiently a company uses its capital. ROE is calculated by dividing net income (after taxes and investment income) by total shareholder equity. A high ROE indicates that the company is making good use of its funds while a low ROE signals that the company may be overspending or not taking full advantage of available resources.

What is return on investment?

ROI or return on investment is a financial metric that gauges how profitable a company is. It takes into account all of the money made from profits, dividends, sale of assets, and any other means of generating income to determine how much profit a company is making relative to its total investments.

What is financial budget?

A financial budget is a plan that shows how much money a person or organization will have available in specific time periods and how money will be allocated and used.

What is financial forecast?

A financial forecast is a projection of future financial results, usually for a specific period of time. Forecasts may be made for individual companies, industries, regions, or the global economy as a whole. Forecasts can be short-term (one year) or long-term (several years).

What are financial projections?

Financial projections are a way to create a forecast of future income and expenses. Generally, they are used by businesses in order to plan for the long term, make budget decisions, and assess their financial situation.

What is financial plan?

A financial plan is a document that outlines your long-term financial goals and objectives. It can also include instructions on how to improve your financial position, create a budget and invest.