Day: January 24, 2022

These measure the financial risk of a firm (the probability that a firm will not be able to pay up its debts). The more debts a business has (non owner supplied funds) the higher the financial risk.   This ratio Read More …

The following limitations are inherent in the use of ratios: – 1. Historical information. Ratios are computed from past statements thus giving historical information which may be irrelevant for future decision making. 2. Size and diversification of firms. Different firms Read More …

Ratios can be used in the following ways: – 1. To evaluate the ability of a firm to meet short-term maturing financial obligations as and when they fall due (liquidity ratios). 2. Ratios indicate the ability of a firm to Read More …

Financial statement analysis is the process of identifying the strength and weaknesses of the firm by establishing and analyzing the relationships between various items in the financial statement. This relationship is expressed by the use of ratios. Basic Financial Statement Read More …

The term debenture is used when a limited company receives money on loan, and certificates called debenture certificates are issued to the lender. They are also called loan stock or loan capital. Debenture interest has to be paid whether profits Read More …

The profit and loss account of a company, is the same as that of a sole trader, but there are additional expenses that are unique to the company and therefore, they should be included in the in this account (e.g.) Read More …

The owner’s interest in a limited company consists of share capital. The share capital is divided into shares. A share is the smallest unit of ownership in a company. The investor will then pay for and be issued with the Read More …

Limited companies come into existence because of the growth in size of business and the need to have many investors in the business. Partnerships are not suitable for such businesses because the membership is limited to twenty persons. There are Read More …

When a partner retires (i.e.) leaves the firm and the others partners are left to continue with the business then the retirement marks the end of one partnership and the start of a new one. The partner who is leaving Read More …

When a new partner is admitted into the firm, this marks the end of the old partnership and the beginning of a new one. The new partner will have to bring in the capital that is due from him as Read More …