Ideal vs. Practical Standards
Ideal standards allow for no machine break-downs or work interruptions, and can be attained only by working at peak effort 100 percent of the time….
Financial Management
Direct labor standards
The standard rate per hour for direct labor should include all the costs of direct labor workers, including: Hourly wage rates. Fringe benefits. Employment taxes….
Cost-volume relationships
A person starting a new business often asks, “At what level of sales will my company make a profit?” Established companies that have suffered through…
Standard Cost System
Standard costing is an important subtopic of cost accounting. Standard costs are usually associated with a manufacturing company’s costs of direct material, direct labor, and…
Times interest earned ratio
Why is it possible to talk of a “rule-of-thumb” number, such as 2.0, for the current ratio, but not have a comparable rule-of-thumb number for…
If the value of one of a firm’s ratios is cut in half, can we be sure that the firm’s condition has improved?
No. While a decrease in some ratios indicates improvement (collection period is an example), this is not true for ratios in general. For many ratios,…
Which ratios would be of most interest to
Since financial ratios can provide insights into a company’s health and financial results, each of these groups would be interested in all financial ratios. However,…
Why do industries that have low total asset turnover ratios tend to have high net profit margins and vice versa?
Companies with a low total asset turnover ratio require a large amount of physical resources to generate each dollar of sales. This means they are…
What would be the effect of inflation on ratios?
How would an analyst take inflation into account in interpreting ratios? Inflation tends to increase income statement amounts year-by-year. New plant and equipment enters the…
Common size financial statements
Why are common size financial statements used for financial analysis instead of the actual statements themselves? Common size financial statements put all numbers in context,…