Free cash flow (FCF) is an important metric to analyze the financial performance of a firm. It is often considered an equally important measure as the net profit of a firm. There are several ways to calculate the free cash flow of the firm. Similarly, there are various versions of the cash flow that are […]
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Target profit is the desired profit that a business wants to achieve in an accounting or manufacturing period. The conventional approach is to set budgets and compare results against standards. A comprehensive approach to follow is the cost-volume-profit analysis. The target profit calculation is an integral part of the CVP analysis. Let us discuss this
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Activity-based costing (ABC) is a useful costing method that accounts for overheads and indirect costs. It allocates costs through identifying cost activities, cost drivers, and cost pools. The ABC method removes several inefficiencies in the traditional costing approach. However, the approach requires effective implementation and change management to achieve efficiency. Let us discuss what is
Variable or marginal costing and full or absorption costing methods are two widely used inventory costing methods. Both come with different advantages and some limitations to implement. The marginal costing method helps a company in key decisions such as operational efficiency and control measures. The absorption method allocates full production costs and offers accurate final
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Absorption costing is the full costing method that considers variable and fixed overheads. It comes with several advantages as compared to the marginal costing method. Absorption costing is a simple and less costly method as compared to the modern activity-based costing approach. However, it comes with limitations against other costing methods a well. Let us
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Activity-based costing is a comprehensive cost allocation method. It helps the management identify cost activities and cost drivers. ABC method serves several purposes including product costing, pricing, profitability, and customer profitability analysis. On the other hand, absorption costing is the conventional costing approach. It adds fixed overhead costs to the variable costs of production. Let
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A company’s financial statements include a summary of its books of accounts. These statements allow the stakeholders to make decisions regarding their relationship. Sometimes, however, stakeholders may not trust the figures presented in the financial statements. For that reason, companies must get their financial statements audited by an independent audit. Auditing is a function in
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The audit report is a statement that includes the auditors’ opinion related to a subject matter. This report usually consists of the opinion paragraph and the basis for the opinion paragraph as the primary areas. Both of these help auditors provide their opinion of whether a client’s financial statements are free from material misstatements. Similarly,
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A stakeholder is an entity that has an interest in a company’s operations. Stakeholders can be internal or external. Usually, these entities make decisions regarding their relationship with a company based on the financial statements. These statements include a proper presentation of a company’s financial records in accordance with applicable standards. For stakeholders to make
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In auditing, the planning stage is one of the most crucial. During this stage, auditors must contemplate the approach they will take to tackle an audit engagement. There are several processes that auditors must perform during audit planning. Among other things, these include planning materiality and tolerable misstatement. Both of these are critical in the
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