Why should sunk costs be ignored in future decision making?

June 30, 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

Who actually declares a dividend?

June 30, 2024 No Comments

A: It is a company’s board of directors who actually declares a dividend. The declaration date is the first of four important dates in the process of a company paying a dividend. How a Company Handles Paying a Dividend Before a cash dividend is declared

Why are capital expenses (CAPEX) treated differently than current expenses?

June 30, 2024 No Comments

A: Current expenses are the necessary purchases that keep your business going from day to day such as rent, utility bills and office supplies. They are short-term purchases, or those used for less than one year, with no long-term effect on the profitability of a

Why are efficiency ratios important to investors?

June 30, 2024 No Comments

A: When analyzing a company’s potential for investment, it is important to examine its financial performance from every angle. While metrics that measure a company’s ability to turn profit are of paramount importance, the efficiency with which they do so also bears scrutiny. A company

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

June 30, 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

Why do analysts sometimes give an overweight recommendation on a stock?

June 30, 2024 No Comments

A: Financial analysts give their opinions of the future performance of a security. They can give performance ratings of underweight, overweight and market perform to a security. If analysts give a stock an overweight rating, they expect the stock to outperform its industry in the

Why do companies use reverse/forward stock splits?

June 30, 2024 No Comments

A: Companies will use reverse/forward stock splits mainly in an attempt to save future administrative costs. A reverse/forward stock split involves two corporate actions: first, the company will perform a reverse stock split, and will immediately follow with a forward stock split. The purpose of

Why do shareholders need financial statements?

June 30, 2024 No Comments

A: Shareholders need financial statements to evaluate their equity investments and help them make informed decisions as to how to vote on corporate matters. When evaluating investments, shareholders are able to glean meaningful data found on financial statements. There are a number of tools shareholders

Why is Average Collection Period important to a company?

June 30, 2024 No Comments

A: An average collection period shows the average number of days necessary to convert business receivables into cash. The degree to which this is useful for a business depends on the business’s relative reliance on credit sales to generate revenue; a high balance in accounts

Why is deferred revenue listed as a liability on the balance sheet?

June 30, 2024 No Comments

A: Deferred revenue, which is also referred to as unearned revenue, is listed as a liability on the balance sheet, because under accrual accounting, the revenue recognition process has not been completed, and the company’s product or service is still due to the buyer. When

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