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Home > Balance Sheets Calculations

# Balance Sheets Calculations

## Calculations

Calculations and Ratios presents the essential mathematical tools the finance professional needs for finding solutions to daily numerical problems. This section includes how to calculate return on investment, return on shareholders' equity, working capital productivity, EVA, risk-adjusted rate of return, CAPM, and many more.

• Accrual Rate
In the pensions world, accrual rate is the rate at which an individual’s entitlement to pension benefit builds up related to his or her salary, often in an employer’s pension scheme.
• Amortization
Amortization is a method of recovering (deducting or writing off) the capital costs of intangible assets over a fixed period of time. Its calculation is virtually identical to the straight-line method of depreciation.Amortization also refers to the establishment of a schedule for repaying the principal and interest on a loan in equal amounts over a period of time. Because computers have made this a simple calculation, business references to...
• Asset Turnover
The amount of sales generated for every dollar’s worth of assets over a given period.
• Asset Utilization
How efficiently an organization uses its resources and, in turn, the effectiveness of the organization’s managers.
• Book Value
A company’s common stock equity as it appears on a balance sheet.
• Capital Expenditure
Capital expenditure (capex) refers to the money a business spends purchasing or upgrading fixed assets for future business benefit. Capital expenditure can include money spent for new property that will be resold, or which might be kept for one or more years. Capital expenditure also includes money spent to improve property (or inventory) that you already own. Under international reporting standards, property is considered to be improved only if...
• Capitalization Ratios
By comparing debt to total capitalization, these ratios reflect the extent to which a corporation is trading on its equity, and the degree to which it finances operations with debt.While not the focus here, capitalization ratio also refers to the percentage of a company’s total capitalization contributed by debt, preferred stock, common stock, and other equity.
• Creating a Balance Sheet
The financial standing, or even the net worth or owners’ equity, of a company at a given point in time, typically at the end of a calendar or fiscal year.
• Creating a Profit and Loss (P&L) Account
A company’s sales revenues and expenses over a period, providing a calculation of profits or losses during that time.
• Debt/Capital Ratio
The percentage of total funding represented by debt.
• Debt/Equity Ratio
How much money a company owes compared with how much money it has invested in it by principal owners and stockholders.
• Defining Assets
Collectively, the value of all the resources a company uses to conduct business and generate profits. Examples of assets are cash, marketable securities, accounts and notes receivable, inventory of merchandise, real estate, machinery and office equipment, natural resources, and intangibles such as patents, legal claims and agreements, and negotiated rights.
• Depreciation
Depreciation is a basic expense of doing business, reducing a company’s earnings while increasing its cash flow. It affects three key financial statements: balance sheet; cash flow; and income (or profit and loss). It is based on two key facts: the purchase price of the items or property in question, and their “useful life.”Depreciation values and practices are governed by the tax laws of both national governments, and state or provincial...
• Distinguishing between a Capital and an Operating Lease
Determining whether a lease obligation is an operating or capital lease, for financial reporting purposes, requires that it be evaluated on the basis of four criteria established by the FASB (Financial Accounting Standards Board). The criteria are objective rules for making a judgment about who, the lessor or the lessee, bears the risks and benefits of ownership of the leased property.If a lease is determined to be a capital lease, an asset and...
• Future Value of an Annuity
The value to which a series of fixed-amount payments made at regular intervals will grow over the specified period of time.
• Gross Profit Margin Ratio
The gross profit margin ratio measures how efficiently a company uses its resources, materials, and labor in the production process by showing the percentage of net sales remaining after subtracting the cost of making and selling a product or service. It is usually expressed as a percentage, and indicates the profitability of a business before overhead costs.
• Interest Coverage
The amount of earnings available to make interest payments after all operating and nonoperating income and expenses—except interest and income taxes—have been accounted for.
• Management Accounts
Company accounts fall into two categories: financial and management. While financial accounts are regulated and audited reports of financial transactions and processes, the management accounts are designed to help key business executives understand the overall performance of the business. Most companies produce these reports monthly or quarterly.
• Marginal Cost
The additional cost of producing one more unit of product, or providing service to one more customer.
• Net Added Value (NAV) and Adjusted NAV
Net added value, or net asset value, is the value of a corporate asset or business based on its assets minus its liabilities. Adjusted NAV refers to the value once it has been adjusted for any known or suspected differences between market value and book value. In share dealing, NAV refers to the value of a portfolio minus its liabilities.
• Residual Value
Residual value is the value an asset will have after it has been depreciated, or amortized. Residual value is sometimes referred to as “salvage” value.
• Return on Assets
A company’s profitability, expressed as a percentage of its total assets.
• Swap Valuation
In finance, a swap is a derivative in which two parties agree to exchange one stream of cash flow against another. The swap buyer makes a stream of interest payments on a principal sum to the seller, based on the present value of the asset, for a fixed period of time. The seller then receives payments from the seller, which are usually based on a fixed rate, such as Libor. The swap valuation is the price that each party assigns to the components...
• Weighted Average Cost of Capital
The weighted average cost of capital (WACC) is the rate of return that the providers of a company’s capital require, weighted according to the proportion each element bears to the total pool of capital.