Net sales are the amount of sales that will actually be counted towards a company’s bottom line, meaning they account for goods returned or damaged goods. If a good is fully delivered to a customer and any return policy is expired, the good can be booked as a net sale for the company. Therefore, net sales gives a more accurate picture of the actual sales generated by the company, or the money that it expects to receive. Continue reading...
Also called net operating margin, return on sales can indicate how well a company makes use of its sales revenue. By dividing Operating Profit by Net Sales, we can arrive at the Return on Sales. Essentially what we’ve done is broken down profits on a per sales basis. We can see what percentage of sales ends up as profit, or, on the other side of the coin, how much profit is generated per unit of sales. This can be useful for a comparison of companies of different sizes, because it excludes their assets, capital structures, taxes, and interest. Continue reading...
IRS Link to Publication — Found Here Businesses can refer to Pub. 535 to get a better grasp on what expenses can help lower their corporate tax bill. Many of the costs required to do business can be deducted or depreciated. The guide addresses employee compensation, inventory, research and development, and much more. Many of the expenses that could fall into the category of “overhead” can be deducted by a business. Continue reading...
A Bill of Sale is essentially a trumped-up receipt, unless you are in England. A Bill of Sale is a document affirming that the rights of ownership of an asset have been transferred from one party to another, in exchange for “full consideration,” which is another word for compensation or payment. A receipt from a retail transaction can be considered a Bill of Sale, but a full-fledged bill of sale should accompany large transactions like car sales and so on. The British definition of Bill of Sale, however, is somewhat different. Continue reading...
The cost of debt is a calculation that determines the actual cost of a company’s debt financing. Since interest payments are generally tax deductible, the cost of debt may not be as simple as just adding up all of the interest paid on a loan. It would have to be adjusted for the tax savings, such that it is total interest paid less the tax savings. Continue reading...
When budgeting for companies, some expenses are fixed overhead and some are variable, which depend on the amount of work being done. The direct cost of materials and labor are a good example of variable costs that will fluctuate with production levels. There may be an equation that the company can use to reliably predict these variable costs, but they are not fixed costs. From an accounting perspective, of course, these costs would be in separate sections. Fixed costs include warehousing, depreciation, insurances, rent, taxes, salaries, and so forth. These can be put into the budget before anything else happens or any orders have been taken for the year. The variable costs must be taken into account on the fly. Continue reading...
No-Cost Mortgages waive the initial closing costs by making a repayment structure for those costs into the interest payments on a mortgage loan. Closing costs can range from 2%-5% of the total cost of the home, and include attorney fees, underwriting fees, application fees, and so on. These costs are deferred and are paid in the form of additional interest on the loan. Closing costs are separate from down-payments of equity, and are a miscellaneous hodgepodge of a wide range of fees associated with closing a mortgage deal. These costs are sometimes covered by the seller, but most often they are paid by the buyer. Continue reading...
Adjusted Cost Basis (ABC) is the value of an item for tax purposes, adjusted for depreciation and expenditures. Sometimes abbreviated ABC, adjusted cost basis is the valuation of an item for tax purposes; that is, if it is to be bought or sold, what gains or losses would be assigned to it? Some business assets are depreciated on a set schedule, such as equipment. For equipment sold or taken as part of an acquisition a few years after it was purchased, the depreciation factor would reduce the value of the item for tax purposes by perhaps as much as 20% per year. If a company spent significant amounts of money improving a facility, the cost basis of the facility would go up by that amount. Continue reading...
The Cost of Capital is the hurdle over which a business must get to generate positive cash flow. It is what it will cost companies to get capital from investors. Companies sometimes use debts or equities to finance their business operations. The service paid on debt and the operating expenses are lines over which the revenue must get to be saved as retained earnings or distributed as dividends. The yield expected by investors on debt is the cost of capital for the company taking on those loans. Continue reading...
Environmental regulations or lawsuits occasionally force companies to comply by taking measures or acquiring technologies to abate their environmental impact, and the overhead of such projects is called Abatement Cost. Increasingly over the last 20 years or so more countries and states have begun imposing laws on companies to reduce their carbon emissions, noise pollution, and various other environmental impacts. The costs of enacting measures or technologies to help them comply with such regulations is known as abatement cost. Continue reading...
Asset Turnover is a metric that investors and companies can use to determine how efficiently a business uses its assets to create revenue. Asset Turnover is a ratio of the value of a company’s sales or revenues relative to the value of its assets. It can be calculated simply by dividing sales or revenue by total assets. The higher an asset turnover ratio for a company, the better that company is performing - since it implies that the company is generating a high level of sales and revenue per unit of assets. Continue reading...
An account executive is an individual who has executive responsibility of the maintenance of client account. In certain businesses, some client accounts have a high degree of importance and priority with regards to sales and operations, perhaps because they generate significant revenue for the company. Examples of such businesses might be advertising, office products, and investment services. The title of account executive is especially fitting if there is a staff which supports the lead account executive in maintenance of the client relationship and account service, but a staff is not required to hold this title. In other businesses this position might be called an account manager. Continue reading...
Opportunity cost is a fundamental concept in economics and decision-making. It refers to the potential loss of choosing one option over another and helps individuals and organizations make informed decisions by considering the potential benefits and costs of each option. Opportunity cost also plays a significant role in macroeconomics, trade, and determining the price of goods and services. Understanding opportunity cost is essential for making trade-offs, allocating resources, and achieving long-term success. Continue reading...
Dollar cost averaging (DCA) is a method of hedging against the risk of investing a lump sum at high market prices. With DCA, the investor deploys money at set intervals, hoping to get the best average price per share. If you use the same amount of money to buy shares at set intervals, you will acquire more shares when the market is down, and fewer shares when the market is up, so theoretically you would have acquired more of the advantageously-priced shares overall and will be in a better position in the long run. Continue reading...
The Time Value of Money is a theme for discourse and calculations related to the effect of interest on money over time, and the interrelation between Present Value and Future Value. The Time in the equation of Rate of Return x Time x Present Value = Future Value has a value and an effect on the Future Value (or the Present Value depending on what you're solving for). The Time Value of Money is, at it's simplest, something which nearly everyone has seen but hasn't heard called by that name: turn this amount of money into that amount of money by letting it grow in the market for a length of time. Continue reading...
Lifetime cost is the total amount of money that a good will cost a consumer over the entire course of ownership. This included related, add-on costs such as maintenance, fuel, insurance and so on. These costs can dwarf the actual purchase price of the item. Lifetime cost is also known as total cost of ownership (TCO), and it is a budgetary way to look at the expenses that go along with the purchase of an item. Continue reading...
Adaptive selling is a sales and marketing principal where the product or services offered are framed or actually modified based on the preferences or demographics of the audience or client. Adaptive selling requires the ability to customize a shopper’s experience as they interface with the real or virtual storefront. The sales system leaves room to learn about the customer and to adopt the language and products offered based on changing interpretations of the customer. This may require a well-trained sales representative or a well-designed computer algorithm, as has been implemented on some e-commerce sites. Continue reading...
The contribution margin ratio is a financial metric that presents the profit (less variable expenses) as a percentage of net sales. It helps businesses understand the profitability of individual products or the entire business and can be used to make informed decisions about pricing, production, and profitability. However, the contribution margin ratio has limitations and should be considered in conjunction with other financial and non-financial factors when making business decisions. Continue reading...
Income Tax Payable is an account on a company’s ledger where they reserve amounts that will be used to pay the tax liability in the current quarter or year. This account tends to be separate from payroll taxes and sales taxes. This account will typically be empty at the end of the fiscal year. Corporations must pay income taxes based on their gross income, and the funds to pay them are held in the Income Tax Payable account on their company ledger. Continue reading...
Keeping track of your expenses is one of the most important (and basic) steps to leading a responsible financial life. It might be tempting to “eyeball” your expenses and somehow get by without a plan, but in almost all cases, such carelessness will spell financial disaster. Budgeting your money for specific categories of expenses and carefully documenting the actual spending is critical. You should add up amounts spent on monthly mortgage and car payments, rent, groceries, clothing, entertainment, utilities, transportation, and other miscellaneous expenses, and try to get as close to possible to a monthly budget. Continue reading...