Financial Management

Rate of Return

Return is described as the motivating force and the principal reward in the investment process. It is a key method used by investors to compare alternative investments. Returns can be perceived differently by investors. A typical investment’s return consists of two main components: The term “yield” is often used in connection with the income component of return, relating it to some price for a security. Returns can be classified based on when they are measured: Read more

By Institute of Accounts Exams, ago

Annuity

The concept of the Time Value of Money recognizes that a sum of money today is worth more than the same sum in the future due to its potential earning capacity. This is fundamentally linked to the idea of interest and the process of compounding or discounting. Within this framework, we can determine the Future Value (FV), which is the value at some future time of a present amount or a series of payments, evaluated Read more

By Institute of Accounts Exams, ago

Future Value

The Future Value (FV) is a core dimension of the Time Value of Money. It is defined as the value at some future time of a present amount of money, or a series of payments, evaluated at a given interest rate. The concept of Future Value is closely associated with Compounding, which is the process of determining the future value of cash flows by calculating the effect of earning interest on interest over time. We Read more

By Institute of Accounts Exams, ago

Present Value

The Present Value is a core dimension of the Time Value of Money. It is defined as the current value (the value at time “O”) of a future amount of money or a series of future cash flows, evaluated at a given interest rate. The fundamental principle is that money received in the future is not worth as much as an equal amount received today. This difference in value across time periods arises because money Read more

By Institute of Accounts Exams, ago

Time Preference for Money

The Time Preference for Money, also referred to as the Time Value of Money, is a fundamental concept in Financial Management. It explains that a unit of money received today is worth more than a unit of money received in the future. This phenomenon arises because money received now and money received in a future period cannot have the same worth. Most financial decisions, whether personal or business, involve considerations of the time value of Read more

By Institute of Accounts Exams, ago

Cash Flow Analysis

Cash Flow Analysis is a vital tool for financial analysis and planning. It involves the preparation and analysis of a Cash Flow Statement. According to Accounting Standard – 3 (Revised) and Ind AS-7, an enterprise is required to prepare a Cash Flow Statement and present it for each period alongside its financial statements. The primary purpose of a Cash Flow Statement is to reveal the causes of changes in a business concern’s cash position between Read more

By Institute of Accounts Exams, ago

Funds Flow Analysis

Funds Flow Analysis: An Overview Funds Flow Analysis is a crucial tool in financial analysis and planning. While a Balance Sheet offers a static snapshot of a business’s assets and liabilities on a specific date, it does not illustrate the movement or flow of funds within the business. Businesses continuously experience the flow of funds from different sources and their investment in various avenues. The study and control of this funds flow process is a Read more

By Institute of Accounts Exams, ago

Ratio Analysis

Introduction to Financial Analysis and Ratio Analysis The basis for financial analysis, planning, and decision making is financial statements, primarily the Balance Sheet and Profit and Loss Account. While these statements depict the operating activities over a period and the financial position at a specific point, they do not always disclose all necessary and relevant information. To obtain the material information required to ascertain the financial strengths and weaknesses of an enterprise, it is necessary Read more

By Institute of Accounts Exams, ago

Techniques and limitations of Financial Analysis

Introduction to Financial Analysis Financial analysis is a crucial process in financial management, concerned with evaluating the relationship between component parts of financial statements to obtain a better understanding of a firm’s position and performance. The basis for financial analysis, planning, and decision making is financial statements, primarily the Balance Sheet and Profit and Loss Account. The Profit & Loss Account shows the operating activities over a period, while the Balance Sheet depicts the value Read more

By Institute of Accounts Exams, ago

Analysis and interpretation of financial statements

Financial analysis, planning, and decision-making are primarily based on financial statements. These statements mainly consist of the Balance Sheet and the Profit and Loss Account. The Profit and Loss Account shows the operating activities of a concern over a period of time, while the Balance Sheet depicts the balance value of acquired assets and liabilities, representing the financial position of an organization at a specific point in time. However, these statements alone may not disclose Read more

By Institute of Accounts Exams, ago