FINANCIAL RATIOS

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The time value of money (TVM) is the concept that money today has a higher future value than the same amount of money in the future. This is because of the power of compound interest. Formula for Future Value: FV = PV(1 + r)n where: Formula for Present Value: PV = FV/(1 + r)n Explanation: […]

The Altman Z-score is a statistical tool used to assess the financial health of a company. It is based on the company’s current assets, current liabilities, quick assets, and retained earnings. Formula: Z-score = 0.5232 + 0.1999*X – 1.2824*Y where: Interpretation: Uses: Limitations: Additional Notes: FAQs

Simple linear regression is a linear model that predicts the value of a continuous variable (dependent variable) based on the value of another variable (independent variable). It is a commonly used technique in data analysis for modeling the relationship between two variables. Model: The simplest linear regression model has the following form: y = b0 […]

Definition: The base year is the year in which a company adopts a particular accounting standard for the first time or changes its existing accounting standard to a new one. It is the year against which financial statements are compared to show changes over time. Purpose: Examples: Key Considerations: Additional Notes: FAQs

Standard deviation is a measure of statistical dispersion that quantifies the variability or spread of a set of data around its mean. It is calculated by the square root of the variance. Formula:Standard deviation (σ) = √[Variance (Var) = Σ(x – μ)² / n – 1] where:* σ is the standard deviation* Var is the […]

Sampling Sampling is a statistical process of selecting a subset of the population to represent the entire group. It is used when it is impractical or impossible to collect data from every member of the population. Types of Sampling: 1. Simple Random Sampling:– Each member of the population has an equal chance of being selected. […]

Ratio Analysis Ratio analysis is a fundamental accounting technique used to analyze and interpret financial statements by comparing ratios to industry benchmarks or historical trends. It involves calculating ratios from various financial items and analyzing their relationships to provide insights into a company’s financial performance, liquidity, solvency, and profitability. Types of Ratios: Liquidity Ratios: Measure […]

Dupont Analysis The DuPont analysis is a financial ratio analysis technique used to assess the relative performance of a company’s profitability, liquidity, and solvency. It is a widely used tool in equity analysis to gauge the overall health of a company. Key Components of DuPont Analysis: 1. Profitability Ratios:– Gross Profit Margin- Net Profit Margin- […]

Debt-to-Equity Ratio The debt-to-equity ratio is a measure of a company’s capital structure that compares its total liabilities to its total equity. It is calculated by dividing the company’s total liabilities by its total equity. Formula: Debt-to-Equity Ratio = Total Liabilities / (Total Equity + Total Liabilities) Interpretation: High debt-to-equity ratio: Indicates a company has […]