Present Value

Present Value:

Present Value of Money
Present value is the current value of an amount in the future. If we talk about economics, present value, is referred to as present discounted value and in finance it is called cash flow, is a future amount of money that is discounted to reproduce its present value, as if it lived today. The present discount value is always fewer than or equivalent to the future value since money has interest-earning potential, a feature refers to as the time value of money.

What is Cash Ratio?

Cash Ratio

The ratio specify the firm's overall total cash and cash equivalents to its current liabilities. The formula of cash ratio is

Cash ratio = Total Cash ÷ Current Liabilities

Total cash can be found by

Total Cash = (Cash + Cash equivalents + Invested funds)

What is current liability?

Current Liability

In accounting, current liabilities are thought as liabilities of the business that are to be reconciled in cash within the fiscal year or the operating cycle, whichever period is longer.

What is Current Ratio?

Current Ratio:

What is Current Ratio, Current Ratio, Current Asset, Current Liability
This equates assets, which will turn into liquid within about twelve months (i.e. total current assets) with liabilities which will be appropriate for payment in the same period (i.e. total current liabilities) as is proposed to designate whether there are enough short-term assets to meet the short term liabilities.

Current Ratio = Current Assets / Current Liabilities

Shareholder Equity

The shareholder equity is a corporate practice which is showcased by investors and professional accountants in the companies to evaluate how an organization manages its investments and controls the amount of money which has been used through lending to understand the organizational valuation in the market.

Over the years,finance professionals have understood that shareholder equity has become an integral part of ‘stock market’ which is why, most companies are looking forward to glance down on such terminologies of the business.


Equation = Total Assets – Total Liabilities


 Shareholder's Equity = Share Capital + (Retained Earnings – Treasury Share) 

Components of Shareholder Equity


Outstanding Shares

The outstanding shares are considered as the most essential part of the shareholder equity because the company owns full rights over the money or the amount available in this section. It’s an overall value of the company’s stock which is now resting in the hands of the investor and there’s no chance to repurchase the same investment in the future.

Paid In Capital (Additional)

Shareholder equity isn’t all about evaluating the total amount which the company can utilize to purchase new stocks and so on. It’s more than that. Quite undoubtedly, it includes the total amount of funds used upon shares of stock, which makes it as ‘additional paid in capital’ value. In the nutshell, it’s simply a difference between the preferred as well as the value of common stocks and the amount of money used for selling each share either older ones or newer ones.

The finance professionals take pride in informing that Shareholder equity is derived from two main sources. Either the amount of funds invested in the business along with other investments made for the betterment of the company or through retailed earning because it does contribute a larger part in the overall shareholder equity process.

Inventory valuation

Inventory Valuation

The finance professionals consider Inventory Valuation as the dollar amount which is linked with all the items associated within the company’s stock. We must solely focus on the amount since it’s considered as the cost of the mentioned items.

Nevertheless, it is possible that due to some feeble situations or environmental uncertainty, the same cost drops, which affects the credibility of the dollar amount accordingly. 

It depicts the total cost of the company to purchase the inventory and put them up for sale. Even though, the organization might heavily on the creation of such accounts, the cost of administration as well as selling is not included in Inventory Valuation.

Finance has given us an imperative idea that companies are abruptly selling and restocking the most demanded  stock in the market with constant change in the rates. In such a scenario, Inventory Valuation helps by offering us ‘Cost Flow Assumption’ which evaluates the number of inventory items already sold or restocked as per the desired requirement on a monthly basis. 

According to international accounting standards, there are three different ways to harbor inventory valuation within the company. First, it’s the cost flow assumption which solely focuses on the ‘first in and first out’ methods and secondly, the averaging strategies to acquire the cost of each unit of the stock.

Methods of Inventory Valuation: 

  1. The Specific Identification Method
  2. FIFO Method
  3. LIFO Method.

Depending on the financial stability as well as the cash flow effects over stock valuation, the companies can use different methods to get the job done.

However, it becomes quite complex to compare one firm over another, especially, after using multiple inventory valuation methods. Such accountancy gimmicks are recommended to adjust the begin as well as the ending inventories in the companies.

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