Common Financial Analysis Terms

Financial analysis terms are mostly about formulas for calculating yields, costs, and performance. However, one needs to understand the objectives and definitions of financial analysis terms in order to interpret the resulting figures, ratios, and numbers. Certain terminologies are also related to accounting for collateral, income, and priced at analysis. Accounts Receivable Turnover – A method utilized by businesses for identifying the efficiency by which their credit sales or accounts receivables are gathered and converted into actual cash had a need to support its functional activities.

Acid Test Ratio – It is the measurement of the entity’s liquidity by determining the percentage of its quick assets against maturing bills. The quick property refers to the money, marketable securities, accounts receivables and notes receivable, or those that can easily be changed into cash without going for a considerable amount time to be realized therefore. This I call the quick-property ratio also. Days-to-Sell Inventory – This refers to the number of days it requires to dispose or sell goods predicated on inventory releases.

Debt-to-Networth Ratio – The proportion of all exceptional obligations of the company against the net possessions (assets-liabilities) of the business. It’s a sign if the company has sufficient resources to pay off both lenders and stockholders in the event that an organization is constrained to liquidate all its resources. An unfavorable proportion denotes a precarious financial condition for stockholders, being that they are the last in the region of the hierarchy during liquidation proceedings.

Liabilities – Capital, financial evaluation likewise steps the company’s stability by determining the percentage of the company’s total indebtedness to its total capital structure. The resulting ratio derived will indicate if the ongoing company is operating mostly on borrowed funds rather than capital. Differential Analysis – This is an analysis of the variables between two financial figures wherein the objective is to find alternative courses of action to counter any negative inferences derived from such variables.

Differential Cost – This is utilized in a few financial analyses, as bases for identifying the effects of export prices costs or even to present the viability of different markups when choosing the selling price of a fresh product. Discounted Payback Period – This analysis determines the amount of time it takes to recover one’s investment at its present value.

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See Discounted Present Value. Discounted Present Value – This refers to the present worthy of future money that will be received by means of several installments during a given period. Financial Accounting – A specialty area in neuro-scientific accounting which deals with the process of measuring business performance based on the financial data reported as financial claims.

Financial Analysis – An activity of calculating or identifying the viability of a small business as a valuable investment vehicle by examining the numerical data presented in the financial statement reports. The objective is to look for the subject company’s profitability, liquidity, and balance. Financial Forecast – Financial statements that present projected income and expenditures based on a percent of sales and evaluation of regression using financial models.

Management will use them as bases for the being successful year’s budget allocations and estimations for business borrowings, if they become necessary. Find more financial analysis term & definitions continuing with F and G, on another web page. Financial Leverage – This is the way of measuring a company’s ability to operate consistently as a going concern even if it resorts to borrowing long-term money.