What is Top-Down Budgeting? Top-down budgeting refers to a budgeting method where senior management prepares a high-level budget for the company. The company’s senior management prepares the budget based on its objectives and then passes it on to department managers for implementation. Sometimes, the managers may put forward suggestions for the budget before the budget…
What is the Operating Cash Flow Ratio? The Operating Cash Flow Ratio, a liquidity ratio, is a measure of how well a company can pay off its current liabilities with the cash flow generated from its core business operations. This financial metric shows how much a company earns from its operating activities, per dollar of…
What are Non-Operating Assets? Non-operating assets are assets that are not required in the normal operations of a business but that can generate income nonetheless. The assets are recorded in the balance sheet and may be listed separately or as part of operating assets. Non-operating assets do not help in the day-to-day operations of the…
What is Budgeting? Budgeting is the tactical implementation of a business plan. To achieve the goals in a business’s strategic plan, we need a detailed descriptive roadmap of the business plan that sets measures and indicators of performance. We can then make changes along the way to ensure that we arrive at the desired goals….
What is the Asset Turnover Ratio? The asset turnover ratio, also known as the total asset turnover ratio, measures the efficiency with which a company uses its assets to produce sales. The asset turnover ratio formula is equal to net sales divided by the total or average assets of a company. A company with a high…
What is Return on Net Assets (RONA)? The return on net assets (RONA) ratio, a measure of financial performance, is an alternative metric to the traditional return on assets ratio. RONA measures how well a company’s fixed assets and net working capital perform in terms of generating net income. Return on net assets is commonly…
What is a Black Swan Event? A black swan event, a phrase commonly used in the world of finance, is an extremely negative event or occurrence that is impossibly difficult to predict. In other words, black swan events are events that are unexpected and unknowable. The term was popularized by former Wall Street trader Nassim…
What is Debt Restructuring? Debt restructuring is a process wherein a company or an entity experiencing financial distress and liquidity problems refinances its existing debt obligations in order to gain more flexibility in the short term and make their debt load more manageable overall. Reason for Debt Restructuring A company that is considering debt restructuring…
What is a Dividend Reinvestment Plan (DRIP)? A dividend reinvestment plan (DRIP or DRP) is a plan offered by a company to shareholders that it allows them to automatically reinvest their cash dividends in additional shares of the company on the dividend payment date. Dividend reinvestment plans are typically commission-free and offer a discount to…
What is the Statement of Retained Earnings? The statement of retained earnings provides an overview of the changes in a company’s retained earnings during a specific accounting cycle. It is structured as an equation, such that it opens with the retained earnings at the beginning of the reporting period, makes adjustments for items such as…
