marginal analysis

Definition
The process of identifying the benefits and costs of different alternatives by examining the incremental effect ontotal revenue and total cost caused by a very small (just one unit) change in the output or input of each alternative.Marginal analysis supports decision-making based on marginal or incremental changes to resources instead of one based on totals or averages. What Does Marginal Analysis Mean?
An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions. Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables.

Read more: http://www.investopedia.com/terms/m/marginalanalysis.asp#ixzz1afcm2Mgq Investopedia explains Marginal Analysis For example, if you already exercise five times a week and are thinking about adding a sixth day, you would use marginal analysis to determine whether the benefits of the sixth day, such as additional calories burned, endurance gained and muscle built, would be worth the costs of the sixth day, such as giving up sleeping in on Saturdays, having less energy to do your other weekend activities, and increasing your risk of injury. Read more: http://www.investopedia.com/terms/m/marginalanalysis.asp#ixzz1afcoKD4W
Definition: Technique of setting the advertising budget by assuming the point at which an additional dollar spent on advertising equals additional profit.

Accrual basis
Accrual basis taxpayers include items when they are earned and claim deductions when expenses are incurred.[10] An accrual basis taxpayer looks to the all-events test and earlier-of test to determine when income is earned.[11] Under the all-events test, an

accrual basis taxpayer generally must include income "for the taxable year when all the events have occurred that fix the right to receive income and the amount of the income can be determined with reasonable accuracy."[12] Under the "earlier-of test", an accrual basis taxpayer receives income when (1) the required performance occurs, (2) payment therefore is due, or (3) payment therefore is made, whichever happens earliest.[13] Under the earlier of test outlined in Revenue Ruling 74-607, an accrual basis taxpayer may be treated, as a cash basis taxpayer, when payment is received before the required performance and before the payment is actually due. An accrual basis taxpayer generally can claim a deduction in the taxable year in which all the events have occurred that establish the fact of the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred with respect to the liability.[14] Similar definition of accrual basis accounting is true for financial accounting purposes, except that revenue can't be recognized until it's earned even if a cash payment has already been received.[9]

Double Entry and the Accrual Basis of Accounting

At the heart of financial accounting is the system known as double entry bookkeeping (or "double entry accounting"). Each financial transaction that a company makes is recorded by using this system. The term "double entry" means that every transaction affects at least two accounts. For example, if a company borrows $50,000 from its bank, the company's Cash account increases, and the company's Notes Payable account increases. Double entry also means that one of the accounts must have an amount entered as a debit, and one of the accounts must have an amount entered as a credit. For any given transaction, the debit amount must equal the credit amount. (To learn more about debits and credits, seeExplanation of Debits & Credits.) The advantage of double entry accounting is this: at any given time, the balance of a company's asset accounts will equal the balance of its liability and stockholders' (or owner's) equity accounts. (To learn more on how this equality is maintained, see the Explanation of Accounting Equation.) Financial accounting is required to follow the accrual basis of accounting (as opposed to the "cash basis" of accounting). Under the accrual basis, revenues are reported when they are earned, not when the money is received. Similarly, expenses are reported when they are incurred, not when they are paid. For example, although a magazine publisher receives a $24 check from a customer for an annual subscription, the publisher reports as revenue a monthly amount of $2 (one-twelfth of the annual subscription amount). In

the same way, it reports its property tax expense each month as one-twelfth of the annual property tax bill. By following the accrual basis of accounting, a company's profitability, assets, liabilities and other financial information is more in line with economic reality. (To learn more on achieving the accrual basis of accounting, see the Explanation of Adjusting Entries.)

accrual basis of accounting: Transactions are recorded when they occur regardless of when cash is paid or received. Commissions use a modified form of accrual accounting (see Modified Accrual Basis) for Governmental funds. However, the accrual basis of accounting is used for the preparation of annual government-wide financial statements where governmental activities are reported (governmental activities are defined later).

matching principle
Definition
Accounting: A fundamental concept of accrual basis accounting that offsets revenue against expenses on the basis of their cause-and-effect relationship. It states that, in measuring net income for an accounting period, the costsincurred in that period should be matched against the revenue generated in the same period.
What Does Accrual Accounting Mean? An accounting method that measures the performance and status of a company regardless of when cash transactions occur; financial transactions and events are recognized by matching revenues to expenses (the matching principle) at the time when the transaction occurs rather than when payment actually is made (or received). This allows current cash inflows and outflows to be combined with expected future cash inflows and outflows to provide a more accurate picture of a company's current financial condition. Accrual accounting is the standard accounting practice for most big companies; however, its relative complexity makes it more expensive to implement for small companies. This is the opposite of cash accounting, which recognizes transactions only when there is an exchange of cash.

The principle of accrual (also called matching) is fundamental to accounting. It requires that costs should be matched to the revenues they generate.

This means, for example, that cost of an asset should be depreciatedover its useful life rather than the entire cost being charged against profits
The most commonly used accounting method, which reports income when earned and expenses when incurred, as opposed to cash basis accounting, which reports income when received and expenses when paid. Under the accrual method, companies do have some discretion as to when income and expenses are recognized, but there are rules governing the recognition. In addition, companies are required to make prudent estimates against revenues that are recorded but may not be received, called a bad debt expense. Read more: http://www.investorwords.com/61/accrual_basis_accounting.html#ixzz1aghy4JGj

Capital Budgeting
What Does Capital Budgeting Mean? The process in which a business determines whether projects such as building a new plant or investing in a long-term venture are worth pursuing. Oftentimes, a prospective project's lifetime cash inflows and outflows are assessed in order to determine whether the returns generated meet a sufficient target benchmark. Read more: http://www.investopedia.com/terms/c/capitalbudgeting.asp#ixzz1agHrX300 What Does Working Capital Management Mean? A managerial accounting strategy focusing on maintaining efficient levels of both components of working capital, current assets and current liabilities, in respect to each other. Working capital management ensures a company has sufficient cash flow in order to meet its short-term debt obligations and operating expenses. Read more: http://www.investopedia.com/terms/w/workingcapitalmanagement.asp#ixzz1agKP VynG nvestopedia explains Working Capital Management Implementing an effective working capital management system is an excellent way for many companies to improve their earnings. The two main aspects of working capital management are ratio analysis and management of individual components of working capital. A few key performance ratios of a working capital management system are the working capital ratio, inventory turnover and the collection ratio. Ratio analysis will lead management to identify areas of focus such as inventory management, cash management, accounts receivable and payable management. Read more: http://www.investopedia.com/terms/w/workingcapitalmanagement.asp#ixzz1agKS RLae

Working Capital Management

An accounting strategy in which a company seeks to maximize its cash flows so as to pay for its current liabilities and operating expenses. Examples of working capital management include active monitoring of accounts receivable and maintaining little short-term debt. Working capital management, if done properly, can help a company improve its earnings and maintain a healthy financial state.

Working Capital Definition

What is working capital? The working capital definition is a measure of your business' efficiency and short-term financial health. Positive working capital means you are able to pay off short term liabilities; negative working capital means your business cannot meet its short term liabilities with current assets (such as cash, inventory and/or accounts receivable). Managing your working capital requires good balancing skills: if your working capital ratio (also known as current ratio) is less than 1 than you have negative working capital and your business will be challenged to cover your short term or immediate liabilities. If your working capital ratio is high (high is considered to be over 2) that can mean that your inventory is high (not a good thing) or that you have excess cash (not usually a small business owner's problem) that you should be re-investing into the business. Ideally (but this is dependent on the type of business you own and operate), your working capital would be in the range of 1.2 to 2.0
Introduction of Working Capital Management Working capital management is the device of finance. It is related to manage of current assets and current liabilities. After learning working capital management, commerce students can use this tool for fund flow analysis. Working capital is very significant for paying day to day expenses and long term liabilities. Meaning and Concept of Working Capital and its management Working capital is that part of companys capital which is used for purchasing raw material and involve in sundry debtors. We all know that current assets are very important for proper working of fixed assets. Suppose, if you have invested your money to purchase machines of company and if you have not any more money to buy raw material, then your machinery will no use for any production without raw material. From this example, you can understand that working capital is very useful for operating any business organization. We can also take one more liquid item of current assets that is cash. If you have not cash in hand, then you can not pay for different expenses of company, and at that time, your many business works may

delay for not paying certain expenses. If we define working capital in very simple form, then we can say that working capital is the excess of current assets over current liabilities.

Rate of return
n finance, rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on aninvestment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage.

Rate of Return
In securities, the amount of revenue an investment generates over a given period of time as a percentage of the amount of capital invested. The rate of return shows the amount of time it will take to recover one's investment. For example, if one invests $1,000 and receives $150 in the first year of the investment, the rate of return is 15%, and the investor will recover his/her initial $1,000 in six years and eight months. Different investors have different required rates of returnat different levels of risk.

Rate of return. Rate of return is income you collect on an investment expressed as a

percentage of the investment's purchase price. With a common stock, the rate of return is dividend yield, or your annual dividend divided by the price you paid for the stock. However, the term is also used to mean percentage return, which is a stock's total return -- dividend plus change in value -- divided by the investment amount. With a bond, rate of return is the current yield, or your annual interest income divided by the price you paid for the bond. For example, if you paid $900 for a bond with a par value of $1,000 that pays 6% interest, your rate of return is $60 divided by $900, or 6.67%.

Required Rate Of Return - RRR

What Does Required Rate Of Return - RRR Mean? The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project. The required rate of return (RRR) is used in both equity valuation and in corporate finance. Investors use the RRR to decide where to put their money. They compare the return of an investment to all other available options, taking the risk-free rate of return, inflation and liquidity into consideration in their calculation. For investors using the dividend discount model to pick stocks, the RRR affects the maximum price they are willing to pay for a stock. The RRR is also used in calculations of net present value in discounted cash flow analysis.

Read more: http://www.investopedia.com/terms/r/requiredrateofreturn.asp#ixzz1agQHtlzQ nvestopedia explains Required Rate Of Return - RRR You might require a return of 9% per year to consider a stock investment worthwhile, assuming that you can easily sell the stock and inflation is 3% per year. Your reasoning is that if you don't receive a 9% return, which is really a 6% return after inflation, then you'd be better off putting your money in a CD that earns a risk-free 3% per year (really 0% after inflation). You aren't willing to take on the additional risk of investing in stocks, which can be volatile and whose returns are not guaranteed, unless you can earn a 6% premium over the risk-free CD. The RRR will be different for every individual and every company depending on their risk tolerance, investment goals and other unique factors.

Read more: http://www.investopedia.com/terms/r/requiredrateofreturn.asp#ixzz1agQM5600

required rate of return investment & finance definition

The amount of return that a project or investment is required to have before the company agrees to budget the money or investors agree to make the investment. If the expected return doesnt exceed the required rate of return the project or investment wont be made. Companies do a required rate of return analysis before deciding to fund a new joint venture or to purchase a piece of equipment. The analysis examines what the expected increase in revenue will be and factors in increased costs as well as the interest that will be paid to borrow the money, if applicable

Capital structure
n finance, capital structure refers to the way a corporationfinances its assets through some combination of equity, debt, orhybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this example, is referred to as the firm'sleverage. In reality, capital structure may be highly complex and include dozens of sources. Gearing Ratio is the proportion of the capital employed of the firm which come from outside of the business finance, e.g. by taking a short term loan etc.

Capital structure
The makeup of the liabilities and stockholders' equity side of the balance sheet, especially theratio of debt to equity and the mixture of short and long maturities.

Capital Structure
How a company finances its operations. The three most basic ways to finance are throughdebt, equity (or the issue of stock), and, for a small business, personal savings. Capital structure usually refers to how much of each type of financing a company holds as a percentage of all its financing. Generally speaking, a company with a high level of debt compared to equity is thought to carry higher risk, though some analysts do not believe that capital structure matters to risk or profitability.

What Does Capital Structure Mean? The combination of a company's long-term debt, specific short-term debt, common equity, and preferred equity; the capital structure is the firm's various sources of funds used to finance its overall operations and growth. Debt comes in the form of bond issues or long-term notes payable, whereas equity is classified as common stock, preferred stock, or retained earnings. Short-term debt such as working capital requirements also is considered part of the capital structure. Investopedia explains Capital Structure The proportion of short-term and long-term debt is considered in analyzing a firm's capital structure. When people refer to capital structure, they most likely are talking about a firm's debt/equity ratio, which provides insight into how risky a company is. Usually a company financed heavily by debt poses greater risks because it is highly leveraged.

Capitalized
Recorded in asset accounts and then depreciated or amortized as is appropriate for expenditures for items with useful lives longer than one year.

Capitalize
In accounting, to recognize expenses on long-term liabilities over a long period of time. This allows a company to spread out its expenses so they do not appear to reduce profits at any particular time. For example, a company may have a $1 million profit and a $1 million loan to acquire machinery for its factory. If it does not capitalize the loan, its balance sheet will show no profit for that year. Capitalizing the loan allows the company to recognize the liability over a certain period, usually the usable life of the machinery.

Market Capitalization
The total value of all outstanding shares of a publicly-traded company. The market capitalization is calculated by multiplying the shares outstanding by the price per share. Market capitalization is one of the basic measures of a publicly-traded company; it is a way of determining the rough value of a company. Generally speaking, a higher market capitalization indicates a more valuable company. Many exchanges and indices are weighted for market capitalization. It is informally known as market cap

capitalization
The amounts and types of long-term financing used by a firm. Types of financing include common stock, preferred stock, retained earnings, and long-term debt. A firm with capitalization including little or no long-term debt is considered to be financed very conservatively.

Market Capitalization
What Does Market Capitalization Mean? The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determining a company's size, as opposed to sales or total asset figures Read more: http://www.investopedia.com/terms/m/marketcapitalization.asp#ixzz1agVnm5uJ

Market Capitalization
What Does Market Capitalization Mean? The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determining a company's size, as opposed to sales or total asset figures Read more: http://www.investopedia.com/terms/m/marketcapitalization.asp#ixzz1agVnm5uJ

What is Capitalization
Capitalization comprises of share capital, debentures, loans, free reserves,etc. Capitalization represents permanent investment in companies excluding long-term loans. Capitalization can be distinguished from capital structure. Capital structure is a broad term and it deals with qualitative aspect of finance. While capitalization is a narrow term and it deals with the quantitative aspect. Capitalization is generally found to be of following types-

Normal Over Under

Agency theory
Agency theory is the branch of financial economics that looks at conflicts of interest between people with different interests in the same assets. This most importantly means the conflicts between:

shareholders and managers of companies shareholders and bond holders.

Agency Theory
The study of the relationship between an agent (such as a broker) and a principal (such as aclient). Agency theory seeks to explain the relationship in order to recommend the appropriate incentives for both parties to behave the same way, or more specifically, for the agent to have the incentive to follow the principal's direction. Agency theory also seeks to reduce costs in disagreements between the two.

financial agency theory, in organizational economics, a means of assessing the

work being done for a principal (i.e., an employer) by an agent (i.e., an employee). While consistent with the concept of agency traditionally advanced by legal scholars and attorneys, the economic variants of agency theory emphasize the costs and benefits of the principalagent relationship. While a beneficial agency cost is one that increases a shareholders value, an unwanted agency cost occurs when management actions conflict with shareholder interests. Such would be the case when managers put their own interests ahead of an owners interests (e.g., manipulating short-term earnings at the expense of long-term performance in order to receive a bonus). Ongoing analyses of agency costs are a common managerial tool, especially in corporations that are managed by nonowners, because they serve to indicate whetheror how wella manager (agent) is fulfilling his fiduciary obligation to an owner (principal).