Why is it sometimes better to use an average inventory figure when calculating the inventory turnover ratio?

July 9, 2024 No Comments

A: Inventory turnover is an important metric for evaluating how efficiently a firm turns its inventory into sales. For a couple of key reasons, average inventory can be a better and more accurate measure when calculating the inventory turnover ratio. Inventory Turnover Inventory turnover details

Why is purchasing stocks on margin considered more risky than traditional investing?

July 9, 2024 No Comments

A: Buying on margin involves borrowing money from a broker to purchase stock. A margin account increases your purchasing power and allows you to use someone else’s money to increase financial leverage. Margin trading confers a higher profit potential than traditional trading but also greater

Why is social responsibility important in marketing?

July 9, 2024 No Comments

A: Social responsibility in marketing is important because the practice involves focusing efforts on attracting consumers who want to make a positive difference with their purchases. Recyclable packaging, promotions that spread social awareness and portions of profits that benefit charitable groups are examples of social

Why is the capital adequacy ratio important to shareholders?

July 9, 2024 No Comments

A: The capital adequacy ratio (CAR) measures the amount of capital a bank retains compared to its risk. National regulators must track the CAR of banks to determine how effectively it can sustain a reasonable amount of loss. National regulators must also determine if a

Why is the TTM (trailing twelve months) important in finance?

July 9, 2024 No Comments

A: Using trailing 12-month (TTM) figures is an effective way to analyze the most recent financial data in an annualized format. Annualized data is important because it helps neutralize the effects of seasonality and dilutes the impact of non-recurring abnormalities in financial results, such as

Why is work in progress (WIP) considered a current asset in accounting?

July 9, 2024 No Comments

A: Accountants consider work in progress (WIP) to be a current asset because it is a type of inventory asset. Accountants consider inventory assets to be current, because they are reasonably expected to be converted into cash within one year’s time. Some accountants distinguish between

Why should sunk costs be ignored in future decision making?

July 9, 2024 No Comments

A: A sunk cost is a cost that cannot be recovered or changed and is independent of any future costs a business may incur. Since decision-making only affects the future course of business, sunk costs should be irrelevant in the decision-making process. Instead, a decision

Why do accountants use debits and credits instead of simple pluses and minuses? Why is the notation for a debit “DR”?

July 9, 2024 No Comments

A: Debits and credits, and the technique of double-entry accounting, are credited (no pun intended) to a Franciscan monk by the name of Luca Pacioli. Known as the “Father of Accounting”, he warned that you should not go to sleep until your debits equaled your

When is an expense ratio considered high and when is it considered low?

July 9, 2024 No Comments

A: A number of factors determine when an expense ratio is relatively high or low, but a good, low expense ratio is generally considered to be around 0.5-0.75% for an actively managed portfolio, while an expense ratio greater than 1.5% is considered on the high

When is earnings season?

July 9, 2024 No Comments

A: Earnings season is the period of time during which a large number of publicly traded companies release their quarterly earning reports. In general, each earnings season begins one or two weeks after the last month of each quarter (December, March, June and September). In

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