We will take a look t different ratios, margins and other indicators that can help assess a company in accounting terms. Ratios, margins and financial leverage The following figures are taken from the latest 12 months of data available, in this case for the latest 12 months ending in September 2010. For Microsoft, the quick ratio Is defined as and equivalents plus receivables, divided by current (Forbes, 2010) Is 2. 1. A company with a Quick Ratio of less than one is unable to pay back their current liabilities. The current ratio, total current assets divided by total current liabilities resulted in 2. The higher the current ratio, the more assertion the short term creditor is paid in full and on time. With the DuPont ratio are measured at their gross book value rather than at net book value in order to produce a higher return on equity (ROE). DuPont analysis tells us that ROE Is affected by three things: Operating efficiency, Asset use efficiency, and, Financial (Investigated, 2010). = Profit Margin (Profit/ Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier The profit margin is the net profit (after taxes), divided by revenue, expressed as a regenerate.
For Microsoft during this period the profit margin is 84. 8%. A low profit margin indicates a low margin for safety, a risk that a decline in sales will diminish profits resulting in a net loss. The asset utilization ratio the total revenue earned for every dollar of assets a company (Yachts, 2010). For example, asset utilization ratio is 70%, meaning that the company earned $. 70 for each dollar of assets held by the company. Asset utilization = Revenue / Average Total Assets The most well-known financial leverage ratio is the debt-to-equity ratio.
In MicrosoftГ? case, the ratio is . 23; this is a proportion of equity and debt used to finance the assets. International Accounting Standards Board vs.. Financial Accounting Standards Board International Accounting Standards Board, SAAB Is an Independent, privately-funded accounting board who set accounting standards for international companies. The Financial Accounting Standards Board, FAST is a private board that is established to set accounting standards for United States companies. Both boards are set up to help understand the financial statements of companies.
However, the FAST only deals with United States companies unlike the ASSAI that deals internationally. Therefore, SAAB how global companies operate financially and make their decisions based on the world. Yet, both companies objective is to set standards that are clear, concise, and fair. The cash basis vs.. The accrual basis There are two approaches to accounting, the cash basis and the accrual basis. The cash basis is quite familiar because is similar to maintaining a personal checkbook where the receipts and payments of cash are recorded.