Accounting: Prudence Concept

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Accounting: Prudence Concept

By | Jan. 2011
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conservation
 Prudence concept: revenue and profits are included in the balance sheet only when they are realized(or there is reasonable 'certainty' of realizing them) butliabilities are included when there is a reasonable 'possibility' of incurring them. Also called conservation concept. Du Pont analysis

A type of analysis that examines a company's Return on Equity (ROE) by breaking it into three main components:profit margin, asset turnover and leverage factor. By breaking the ROE into distinct parts, investors can examine how effectively a company is using equity, since poorly performing components will drag down the overall figure. To calculate a firm's ROE through Du Pont analysis, multiply theprofit margin (net income divided by sales), asset turnover(sales divided by assets) and leverage factor (total assetsdivided by shareholders' equity) together. The higher theresult, the higher the return on equity. Return on Equity

ROE. A measure of how well a company used reinvestedearnings to generate additional earnings, equal to a fiscal year's after-tax income (after preferred stock dividends but before common stock dividends) divided by book value, expressed as a percentage. It is used as a general indication of the company's efficiency; in other words, how much profitit is able to generate given the resources provided by itsstockholders. investors usually look for companies withreturns on equity that are high and growing. Net Working Capital

Net Working Capital, is defined as Current Assets minus Current Liabilities. Current assets include stocks, debtors, cash & equivalents and other current assets. Current liabilities include all the short-term borrowings. The formula is the following and the figures are expressed in millions: operation costing

hybrid of job-order and process cost systems. Companies that manufacture goods that undergo some similar and some dissimilar processes use this system. Operation costing accumulates total conversion costs and...
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